March excavator sales beat expectations, sending a positive signal for the domestic construction machinery upcycle

Overview

This report focuses on March excavator sales data for China's construction machinery industry. The report notes that March excavator sales grew 26% year over year and 117% month over month, while sales in the first three months of 2026 were up 19% year over year. Domestic sales increased 23% year over year despite weak utilization rates and operating hours, outperforming the previously raised 15% to 20% growth expectation; exports remained strong, rising 32% year over year. The report attributes the improvement in domestic demand to post-Lunar New Year demand release and the impact of longer decision cycles after Zoomlion's January price cuts.

Core views

The core view is that the March data strengthened the positive case for the domestic construction machinery upcycle. Domestic sales beat expectations off a high base, showing that demand is not driven solely by a low base; export growth reflects continued gains in overseas share for Chinese brands and support from strong global mining demand. The report favors Sany Heavy Industry Co., Ltd. (600031.SS), Zoomlion Heavy Industry (000157.SZ/1157.HK), and Jiangsu Hengli Hydraulic Co. Ltd. (601100.SS).

Analysis framework

The report mainly uses monthly sales tracking, year-over-year and month-over-month comparisons, domestic-versus-export breakdowns, expectation-delta analysis, and a combination with company valuation frameworks. The industry call is based on sales data from the China Construction Machinery Association (CCMA), together with factors such as construction machinery utilization rates, operating hours, post-holiday demand, price competition, overseas penetration, and global mining demand.

Methodology notes

• Industry Data TrackingYoY and MoM Sales Analysis

  Use year-over-year and month-over-month changes in March and first-quarter 2026 excavator sales to judge demand trends.

  The report examines total sales, domestic sales, and export sales separately, emphasizing that domestic sales still beat expectations on a high base while exports remained strong.

• Valuation MethodP/E Valuation

  Use forward 2026 price-to-earnings multiples to derive target prices for construction machinery companies.

  Zoomlion H-share valuation is based on 12x forward 2026 P/E, and a 20% A-H premium is applied to A-shares; Sany's base case uses 23x forward 2026 P/E.

• Valuation MethodDCF Valuation

  Use discounted cash flow valuation for Hengli Hydraulic's humanoid robot component business.

  The report uses expected cash flows from 2025 to 2050, an 11% WACC, and a 4% perpetual growth rate to derive a per-share value of Rmb94 for the humanoid robot component business, which is combined with the core business valuation to arrive at a Rmb133 target price.

Asset mapping & comparison

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

• Sany Heavy Industry Co., Ltd. (600031.SS)

  One of the report's preferred Chinese construction machinery OEM leaders, with significant exposure to excavator demand and overseas penetration.

  Strengths

  If infrastructure and property construction activity is stronger than expected and overseas penetration accelerates, earnings and valuation could benefit; the report's base case uses 23x 2026E P/E.

  Weaknesses

  Rising competition may weaken bargaining power, and weaker-than-expected sales in overseas emerging markets would weigh on performance.

  Comparison

  Like Zoomlion, Sany is in the construction machinery OEM segment, but Sany's key variables are more concentrated in bargaining power, domestic construction activity, and overseas penetration.

  Risks

  Bargaining power weaker than expected, intensifying competition, and weaker-than-expected sales in overseas emerging markets.

• Zoomlion Heavy Industry (000157.SZ/1157.HK)

  One of the report's preferred construction machinery companies, with exposure to domestic excavator demand, aerial work platforms, and replacement demand.

  Strengths

  If replacement demand from emission standard upgrades is stronger than expected, or if excavator and aerial work platform demand exceeds expectations, share performance could benefit.

  Weaknesses

  January price cuts prolonged industry decision cycles, showing that price competition remains an important variable.

  Comparison

  The report applies 12x 2026E P/E to the H-share line and derives the A-share target price using a 20% A-H premium.

  Risks

  Infrastructure and property investment growth below expectations, and weaker-than-expected overseas demand.

• Jiangsu Hengli Hydraulic Co.Ltd (601100.SS)

  A preferred construction machinery parts and hydraulic components company, with additional upside from humanoid robot component valuation.

  Strengths

  Stronger-than-expected excavator and pump-valve demand, entry into overseas brand supply chains, and humanoid robot penetration and supply-chain share gains could all be upside drivers.

  Weaknesses

  A sharp decline in Chinese excavator and pump-valve demand, or failure to expand share in non-excavator components, would weaken the growth base.

  Comparison

  Compared with OEM companies, Hengli's valuation framework also incorporates a DCF valuation for its humanoid robot component business; the report combines these to derive a Rmb133 target price.

  Risks

  A significant decline in Chinese excavator and pump-valve demand, failure to expand share in non-excavator components, and slower-than-expected humanoid robot penetration.

Key data

• March 2026 total excavator salesYoY +26%, MoM +117%Up 19% YoY in the first three months of 2026.
• March 2026 domestic excavator salesYoY +23%, MoM +257%Up 8% YoY in the first three months of 2026; above the raised 15% to 20% YoY growth expectation.
• March 2026 excavator export salesYoY +32%, MoM +27%Up 36% YoY in the first three months of 2026; driven by Chinese brands' share gains and strong global mining demand.
• Zoomlion H-share valuation assumption12x 2026E P/EThe A-share target price derivation applies a 20% A-H premium, implying 16x 2026E P/E for A-shares.
• Sany base case valuation assumption23x 2026E P/EThe report says this multiple is in line with Sany's average P/E of about 23x during the 2016 to 2017 domestic construction machinery upcycle.
• Hengli Hydraulic target priceRmb133Derived from combining the core business valuation at 35x 2026E P/E and the DCF valuation of the humanoid robot component business.

Impact & implications

If sustained, March sales data would support the view that the construction machinery industry is recovering from a cyclical bottom and could ease market concerns about weak domestic demand. For the related stocks, domestic replacement demand, infrastructure and property construction activity, overseas penetration, pricing competition, and progress in the humanoid robot component business will be important variables that affect valuation rerating and earnings expectations.

Risks

• Infrastructure and property investment growth below expectations could pressure construction machinery demand.
• Weaker-than-expected overseas demand could dampen export growth momentum.
• Intensifying industry competition could weaken companies' bargaining power and margins.
• Weaker-than-expected sales in overseas emerging markets could drag on overseas growth for companies such as Sany.
• A sharp decline in Chinese excavator and pump-valve demand could affect Hengli Hydraulic's core business.
• Slower-than-expected humanoid robot penetration could reduce Hengli Hydraulic's valuation upside.
• Morgan Stanley discloses that it may have business relationships or potential conflicts of interest with covered companies, and investors should treat this report as one factor in decision-making rather than the sole basis.

What to watch

• Whether domestic excavator sales in subsequent months can continue to grow year over year on a high base.
• Whether construction machinery utilization rates and operating hours improve from currently weak levels.
• Whether emission standard upgrades trigger stronger-than-expected replacement demand.
• Whether the price competition triggered by Zoomlion's January price cuts spreads further or eases.
• Whether Chinese brands can continue to gain overseas market share.
• The strength of global mining demand in supporting excavator exports.
• Changes in 2026 earnings expectations and valuation multiples for Sany, Zoomlion, and Hengli Hydraulic.
• Progress in Hengli Hydraulic's penetration of overseas brand supply chains and humanoid robot component supply chains.