China tower crane shipments turn positive year-over-year, and the construction machinery sector is defensive amid weak market sentiment

Overview

This report is Citi's operating data tracking on the China automation and machinery sector. The core observations come from CCMA tower crane shipments, the Pangyuan tower crane rental index, construction machinery utilization, and Hengli Hydraulic's excavator cylinder production data. The report believes that, as the last construction machinery category to show year-over-year demand growth, the positive turn in tower crane shipments in June signals that China tower crane demand has bottomed; however, since about 70% of tower crane demand comes from the property sector and utilization is still declining, the report does not interpret this as a strong recovery in property or infrastructure demand.

Core views

First, the year-over-year positive turn in tower crane shipments is an important signal that the construction machinery cycle has bottomed. Second, while tower crane rental prices improved year-over-year, utilization continued to decline, indicating that the improvement in prices and shipment data has not yet translated into a broad recovery in construction activity. Third, against the backdrop of weak market sentiment caused by the global AI sell-off, China's construction machinery sector, supported by relatively strong operating data, offers investors more defensive characteristics. Fourth, after ex-dividend adjustment, the ranking among OEMs is Sany-H(6031.HK)>Sany-A(600031.SS)>Zoomlion(1157.HK). Fifth, Hengli Hydraulic's excavator cylinder output is expected to grow strongly, which Citi believes is driven more by demand for mid-sized excavators from its major U.S. customer.

Analysis framework

The report combines high-frequency operating data with a valuation framework: it uses industry association shipment volumes, rental price indices, fleet utilization, and construction machinery utilization to assess where demand is in the cycle; uses company-level production data to validate components demand; and then derives target prices for covered companies based on P/E or P/B valuation multiples.

Methodology notes

• Industry cycle analysisHigh-frequency operating data tracking

  Determine the construction machinery demand cycle through shipment volumes, rental prices, utilization, and production data.

  The year-over-year positive turn in tower crane shipments supports the view that demand has bottomed, but falling utilization limits confidence in the strength of a recovery in construction activity.

• Valuation methodP/E valuation

  Hengli Hydraulic's target price is based on 2027E P/E.

  Hengli Hydraulic's target price of Rmb160.0 is based on 50x 2027E P/E, equal to its average P/E plus 0.5 standard deviations, to reflect the re-rating potential from its strong core business and increased humanoid robot exposure.

• Valuation methodPB valuation

  Target prices for Sany and Zoomlion are based on 2026E P/B.

  Target prices for Sany's H-share and A-share are based on 2.5x 2026E P/B, while Zoomlion's target price is based on 1.4x 2026E P/B. The valuation multiples reflect ROE improvement, cyclical reversal, rising dividends, and the potential incremental value from robotics businesses.

Asset mapping & comparison

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

• Sany Heavy (6031.HK)

  Leading construction machinery OEM and Citi's top pick after ex-dividend adjustment

  Strengths

  Target price HK$29.0, based on ROE improvement, cost discipline, and cyclical reversal; ranked first among OEMs.

  Weaknesses

  Still affected by weak fixed-asset investment in property and infrastructure.

  Comparison

  Ranked ahead of Sany-A(600031.SS) and Zoomlion(1157.HK).

  Risks

  Weaker-than-expected machinery demand recovery, lower-than-expected gross margin, weaker-than-expected export growth, and global economic weakness.

• Sany Heavy Industry (600031.SS)

  A-share construction machinery OEM

  Strengths

  Target price Rmb26.0, with valuation also based on 2.5x 2026E P/B and the ROE improvement thesis.

  Weaknesses

  A-shares rank below H-shares in relative preference.

  Comparison

  Ranked behind Sany-H and ahead of Zoomlion.

  Risks

  Weaker-than-expected machinery demand recovery, lower-than-expected gross margin, weaker-than-expected export growth, and global economic weakness.

• Zoomlion Heavy Industry (1157.HK)

  Construction machinery OEM with potential humanoid robot business exposure

  Strengths

  Target price HK$10.8; the report acknowledges its better fundamental outlook, rising cash dividends, and the potential incremental value from its emerging humanoid robot business.

  Weaknesses

  Ranked below Sany H-shares and Sany A-shares.

  Comparison

  Ranked third in OEM preference.

  Risks

  Weaker-than-expected mid-to-late-cycle machinery demand, lower-than-expected gross margin, higher-than-expected credit impairment losses, and weak macro conditions in China or other key markets.

• Hengli Hydraulic (601100.SS)

  Hydraulic components and excavator cylinder supplier

  Strengths

  Excavator cylinder output in July 2026 is expected to rise more than 40% year-over-year; the target price of Rmb160.0 reflects possible re-rating from strong core business and increased humanoid robot exposure.

  Weaknesses

  Output growth is believed to be driven more by its major U.S. customer, so extrapolating this to a recovery in China's supply chain demand requires caution.

  Comparison

  Compared with OEMs, Hengli is more directly driven by hydraulic components, excavator parts, and potential re-rating of its humanoid robot business.

  Risks

  Weaker-than-expected demand for excavator and non-excavator components, weaker-than-expected profitability at the ball screw and Mexico plants due to insufficient economies of scale, and lower-than-expected gross margin despite favorable product mix changes.

Key data

• China domestic tower crane shipments in June 2026up 11% year-over-yearCCMA data; the first non-Lunar New Year low-base-driven year-over-year increase since July 2023.
• Source of tower crane demandabout 70% from the property sectorTherefore, improved tower crane shipments do not necessarily indicate a strong recovery in property or infrastructure demand.
• Pangyuan tower crane rental price index4222016 base is 1000; up 2% year-over-year and 14% higher than the same period last year.
• Tower crane fleet utilizationdeclined year-over-year for four consecutive months from March to June 2026Showing insufficient evidence of a recovery in construction activity.
• China construction machinery utilization in June 202651.1%Down 5.8 percentage points year-over-year and 1.3 percentage points month-over-month.
• Estimated Hengli Hydraulic excavator cylinder output in July 202673,000 to 75,000 units, up more than 40% year-over-yearDriven by demand for mid-sized excavators, which the report believes comes more from its major U.S. customer.
• Hengli Hydraulic target priceRmb160.0Based on 50x 2027E P/E; current price Rmb103.51.
• Sany Heavy H-share target priceHK$29.0Based on 2.5x 2026E P/B; current price HK$18.28.
• Sany Heavy Industry A-share target priceRmb26.0Based on 2.5x 2026E P/B; current price Rmb18.65.
• Zoomlion target priceHK$10.8Based on 1.4x 2026E P/B; current price HK$6.81.

Impact & implications

For portfolios, the report views the positive turn in tower crane shipments as a signal that construction machinery demand has bottomed, and believes Chinese construction machinery stocks have defensive qualities due to relatively strong operating data when risk appetite is suppressed by the global AI sell-off. However, weak utilization and construction activity data mean this improvement looks more like confirmation of a cyclical bottom rather than the establishment of a strong upward cycle.

Risks

• Persistently weak property and infrastructure fixed-asset investment may drag on the recovery in construction machinery demand.
• Tower crane utilization has declined year-over-year continuously, indicating that construction activity has not yet clearly recovered.
• Construction machinery utilization has fallen both year-over-year and month-over-month, which may weaken the sustainability of shipment improvement.
• Lower-than-expected gross margins may affect earnings delivery for OEMs and component companies.
• Weaker-than-expected export sales growth or global economic weakness may pressure valuations of OEMs such as Sany.
• Zoomlion faces risks of higher-than-expected credit impairment losses and weak macro conditions in China or other key markets.
• Hengli Hydraulic faces risks including weaker demand for excavator and non-excavator components, insufficient economies of scale at its ball screw and Mexico plants, and lower-than-expected gross margin.

What to watch

• Whether tower crane shipments in July 2026 and beyond can sustain year-over-year positive growth.
• Whether improvement in the tower crane rental price index can be transmitted into a rebound in fleet utilization.
• Whether China's construction machinery utilization can stabilize from 51.1% and turn upward.
• Whether there will be clearer evidence of a recovery in property and infrastructure construction activity.
• Whether Hengli Hydraulic's July excavator cylinder output will fall within the 73,000 to 75,000 unit range and maintain strong year-over-year growth.
• The relative performance and valuation recovery of Sany H-shares, Sany A-shares, and Zoomlion after ex-dividend adjustment.
• Signals from Estun(002747.SZ)'s factory automation business at its Mandarin business update call on July 21, 2026.