Guotai Junan Securities: Construction machinery and gas turbines perform well, focus on technological innovation direction

According to the Zhitong Finance APP, Guojin Securities released a research report stating that in the first half of 2025, the machinery industry achieved revenue and net profit attributable to shareholders growth year-on-year, with moderate recovery in demand during the period and significant improvement in profitability and cash flow. By sector, construction machinery and gas turbines performed exceptionally well. The firm recommends focusing on two main lines: first, industries with global competitiveness, such as construction machinery and shipbuilding; second, technology innovation industries, such as gas turbines, humanoid robots, and controllable nuclear fusion. Guojin Securities' main viewpoints are as follows: Overall: Moderate recovery in demand, significant improvement in profitability and cash flow (1) The sample statistics come from the Shenwan classification of the Shenwan Machinery Equipment industry and Shenwan National Defense and Military Industry (8 companies) totaling 598 companies. In the first half of 2025, the machinery industry achieved revenue of 1,124.5 billion yuan, a year-on-year increase of 8.6%; net profit attributable to shareholders was 82.7 billion yuan, a year-on-year increase of 22.9%. In the second quarter alone, the machinery industry achieved revenue of 617.5 billion yuan, a year-on-year increase of 7.6%; net profit attributable to shareholders was 46.65 billion yuan, a year-on-year increase of 19%. On a quarterly basis, revenue showed a steady upward trend. (2) In terms of profitability, in the first half of 2025, the comprehensive gross profit margin of the machinery industry was 22.2%, an increase of 0.3 percentage points compared to 2024; the net profit margin attributable to shareholders was 7.4%, an increase of 1.8 percentage points compared to 2024. (3) The overall cash flow situation of the machinery industry is good, with a net operating cash flow of 35.5 billion yuan, a significant year-on-year increase, and a net operating cash flow of 29.4 billion yuan in the second quarter of 2025, a year-on-year increase of 129%. By sector, construction machinery and gas turbines performed exceptionally well Construction Machinery: Recovery in the period drives performance realization, optimistic about the medium to long-term cyclical upturn both domestically and internationally. Since the beginning of this year, excavator sales have shown a rapid rebound. According to data from the China Construction Machinery Industry Association, in July, major domestic excavator manufacturers sold 17,000 excavators, a year-on-year increase of 25.2%, including 7,306 units sold domestically (up 17.2% year-on-year) and 9,832 units exported (up 31.9% year-on-year); from January to July, cumulative sales reached 137,780 units (up 17.8% year-on-year), including 72,900 units sold domestically (up 22.3% year-on-year) and 64,700 units exported (up 13% year-on-year). The industry has achieved a qualitative change from "weak recovery" to "strong reversal" in 2025. In the first half of 2025, the construction machinery industry achieved revenue of 205.8 billion yuan, a year-on-year increase of 8.9%; net profit attributable to shareholders was 12.68 billion yuan, a year-on-year increase of 22.8%; in the second quarter alone, revenue increased by 8% year-on-year; net profit attributable to shareholders increased by 16% year-on-year. In the first half of 2025, the overall gross profit margin of the construction machinery industry was 25.2%, and the net profit margin attributable to shareholders was 10.2%, an increase of 2 percentage points compared to 2024. In the second quarter of 2025, the overall gross profit margin of the construction machinery industry was 26%, and the net profit margin was 10.5%, an increase of 0.8 percentage points year-on-year. Gas Turbines: Global demand is on the rise, and the domestic industrial chain is accelerating domestic substitution. As a stable power source for AI data centers in the future, gas turbines are experiencing rapid demand growth due to the accelerated capital expenditure in AI globally. Coupled with the accelerated domestic substitution of gas turbines in China, the demand for the gas turbine industrial chain is rapidly increasing. Global demand is on the rise, and the domestic industrial chain is accelerating domestic substitution In the first half of 2025, the gas turbine sector generated revenue of 15.1 billion yuan, a year-on-year increase of 28.4%; the net profit attributable to the parent company reached 2.9 billion yuan, a year-on-year increase of 18%. In the second quarter alone, the gas turbine sector's revenue increased by 34% year-on-year; the net profit attributable to the parent company achieved a year-on-year increase of 17%. In the second quarter, the core industry chain companies, Yingliu Co., Ltd., Wanze Co., Ltd., and Allied Machinery achieved net profit growth rates of +57%, +45%, and +37% year-on-year, respectively. General Machinery: Moderate recovery in demand, profitability has declined. Demand for general machinery mainly comes from the manufacturing sector, and its demand attributes are highly correlated with the macro economy. In 2025, the general machinery industry is experiencing a moderate recovery in demand, but competition is fierce. In the first half of 2025, the general machinery industry revenue increased by 12% year-on-year; the net profit attributable to the parent company decreased by 9.8%. In the second quarter alone, the general machinery industry revenue increased by 13% year-on-year, while the net profit attributable to the parent company decreased by 5%, with the decline trend narrowing. Intense competition has led to a continuous decline in profitability, with the overall gross margin of the general machinery industry at 26.6% in the first half of 2025, down 0.2 percentage points compared to 2024; the net profit margin attributable to the parent company was 7.4%, up 1.3 percentage points compared to 2024. In the second quarter of 2025, the overall gross margin of the general machinery industry was 27%, a year-on-year decrease of 0.5 percentage points; the net profit margin attributable to the parent company was 7.5%, a year-on-year decrease of 1.4 percentage points. Risk Warning Risks of macroeconomic changes; risks of raw material price fluctuations; risks of emerging industry development falling short of expectations; risks of policies and capacity expansion not meeting expectations