May Excavator Sales Up 36%, Industry Upcycle Continues

Overview

Morgan Stanley released a commentary on China's construction machinery sector, noting that May 2026 excavator sales data were robust, with growth far exceeding prior market concerns. The report believes the global construction machinery sector is currently in an upcycle, with the domestic market driven by both policy and replacement demand, while overseas markets remain resilient through market share expansion. Based on this, the firm holds a positive outlook on Q2 earnings for leading companies such as Sany Heavy Industry and Zoomlion, and elaborates on each company's valuation logic and potential risks.

Core views

May sales data comprehensively beat expectations: Total excavator sales in China grew 36% YoY in May 2026 (-14% MoM), with cumulative YoY growth of 25% in the first five months. Domestic sales rose 39% YoY (+18% in Jan-May), primarily driven by front-loaded local government special bond issuance and replacement demand for electric excavators. Export sales grew 34% YoY (+33% in Jan-May); despite external disruptions such as Middle East conflicts and rising oil prices, exports remained highly resilient due to continued market share gains across multiple regions including Europe, Latin America, and Africa. Signals of price and margin recovery: Major OEMs, including Sany Heavy Industry, XCMG, and LiuGong, implemented product price hikes between mid-May and June. The report believes this move will effectively support industry margin recovery. Coupled with economies of scale and product mix optimization, corporate profitability is expected to further improve. Positive Q2 outlook for leading companies: Following discussions with Sany Heavy Industry and Zoomlion, the firm is optimistic about their Q2 2026 prospects. Sany Heavy Industry guided for ~20% YoY overseas revenue growth, benefiting from steady overseas demand, optimized excavator product mix, and stable pricing. Zoomlion expects overall growth acceleration as negative FX impacts wane and overseas growth momentum broadens. This further confirms the sustainability of the global construction machinery upcycle.

Analysis framework

The report employs an analytical framework of 'high-frequency sales data validation + cross-confirmation with corporate forward guidance.' First, using monthly sales data from the China Construction Machinery Association (CCMA), it breaks down domestic and export YoY/MoM trends, identifying 'front-loaded special bonds' and 'electrification replacement' as core drivers of the domestic beat, while 'multi-regional share gains' underpin export resilience. Second, incorporating recent management feedback from listed companies, it translates macro sales trends into micro-level corporate revenue guidance and pricing strategy assessments, thereby validating the extent to which the industry upcycle is reflected in financial statements. Finally, differentiated valuation methods are applied based on each company's business characteristics: traditional core businesses are anchored by historical P/E multiples, while emerging businesses (e.g., humanoid robot components) are valued separately via DCF to reflect growth option value.

Methodology notes

• Valuation MethodSOTP Valuation

  Sum-of-the-parts valuation using different methods for diversified businesses

  The report values Hengli Hydraulic's core hydraulic component business at 35x 2026E P/E, while valuing its new humanoid robot component business using DCF (WACC 11%, terminal growth rate 4%), summing both to derive the target price. This approach enables more precise pricing for businesses at different lifecycle stages, avoiding the masking of long-term value in new businesses by a single multiple.

• Valuation MethodPE/PEG valuation

  P/E anchoring based on historical cycle averages

  When valuing Sany Heavy Industry and Zoomlion, the report selected the average P/E from the previous domestic construction machinery upcycle (2016-2017 or 2017-2026) as the target multiple (e.g., 23x for Sany, 13x for Zoomlion H-shares). The implicit logic is that when the industry returns to an uptrend, valuation levels tend to revert to the mean of historical boom periods rather than simply linearly extrapolating current troughs.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposing revenue drivers into volume growth and price changes

  The report focuses not only on the 36% excavator sales growth in May but also specifically highlights OEM price hikes from mid-May to June. In industry analysis, 'volume growth' signals demand recovery, while 'price increases' indicate improved competitive dynamics or enhanced cost pass-through ability. When both volume and prices rise simultaneously, it often implies that earnings elasticity will significantly exceed revenue elasticity, serving as a key signal for identifying profit inflection points.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sany Heavy Industry (600031.SS)

  Beneficiary: Industry leader with strong overseas growth and prominent pricing power

  Strengths

  Overseas revenue guidance of ~20% growth, optimized excavator product mix, stable pricing; average P/E of ~23x during 2016-17 upcycle provides valuation anchor

  Comparison

  Compared to Zoomlion, Sany has superior penetration and pricing power in overseas markets

  Risks

  Infrastructure and property investment below expectations; intensified competition eroding bargaining power; weak sales in developing overseas markets

• Zoomlion (000157.SZ / 1157.HK)

  Beneficiary: Reduced FX drag, broadened overseas momentum, room for valuation recovery

  Strengths

  H-share valuation raised from 12x to 13x 2026E P/E; 20% A-H premium corresponds to 18x P/E for A-shares; emission upgrade-driven replacement demand elasticity

  Comparison

  Compared to Sany, Zoomlion relies more on improved FX conditions and volume ramp-up in new categories (e.g., aerial work platforms) to drive growth

  Risks

  Infrastructure and property investment below expectations; overseas demand below expectations

• Hengli Hydraulic (601100.SS)

  Beneficiary: Core component leader, humanoid robot business unlocking second growth curve

  Strengths

  Core hydraulic component business commands premium 35x valuation; humanoid robot component business valued separately via DCF, reflecting long-term growth options; target price RMB133

  Comparison

  Compared to OEMs, Hengli, as an upstream component supplier, possesses stronger counter-cyclical attributes and potential for new customer acquisition

  Risks

  Significant decline in domestic excavator and pump/valve demand; failure to expand non-excavator component market share; slower-than-expected humanoid robot adoption

Key data

• May Total Excavator Sales YoY Growth+36%Far exceeding market expectations; cumulative +25% in Jan-May
• May Domestic Excavator Sales YoY Growth+39%Driven by front-loaded special bond issuance and electrification replacement demand
• May Excavator Export Sales YoY Growth+34%Continued market share gains in Europe, Latin America, and Africa
• Sany Heavy Industry Overseas Revenue Growth Guidance~20% YoYQ2 2026 guidance, benefiting from overseas demand and product mix optimization
• Hengli Hydraulic Target PriceRMB133Sum of 35x P/E for core business + DCF valuation for humanoid robot business
• Zoomlion H-share Target P/E13x 2026E P/ERaised from previous 12x, consistent with 2017-26 average valuation

Impact & implications

The report believes current data confirms the continuation of the global construction machinery upcycle, dispelling market concerns about weak domestic demand and geopolitical impacts on exports. For the industry, OEM price hikes signal a shift toward rational competition, with margin recovery becoming the key theme in the next phase. For covered companies, strong sales data and positive Q2 guidance provide support for full-year earnings, particularly for leaders with high overseas exposure and rapid new product expansion, which offer greater upside elasticity.

Risks

• Infrastructure and property investment growth below expectations
• Overseas market demand below expectations, especially in developing markets
• Intensified market competition leading to weakened bargaining power
• Slower-than-expected adoption of new businesses such as humanoid robots
• Replacement demand from emission standard upgrades below expectations

What to watch

• Actual implementation of OEM price hikes and impact on margins
• Q2 overseas revenue growth rates and product mix changes across companies
• Subsequent issuance pace of local government special bonds and conversion to physical workload
• Customer validation and order progress for humanoid robot component business
• Marginal impact of FX fluctuations on financial performance of overseas-expanding firms like Zoomlion