China's excavator sales rose 36% YoY in May, significantly stronger than feared

Overview

This report focuses on China's excavator sales data for May 2026 and its implications for the construction machinery sector. Sales rose 36% YoY and fell 14% MoM in May, while cumulative 5M26 sales rose 25% YoY, clearly better than market fears. Domestic sales rose 39% YoY, mainly driven by front-loaded issuance of local government special bonds and replacement demand for electric models; exports rose 34% YoY and remained resilient despite the Middle East conflict and rising fuel prices, mainly driven by share gains across multiple regions including Europe, Latin America, and Africa.

Core views

Morgan Stanley maintains a positive view on the global construction machinery upcycle. The report believes that domestic replacement demand, improving overseas penetration, and OEM price hikes are jointly improving the outlook for revenue and margins. Supported by overseas demand, a better excavator product mix, and stable pricing, Sany guided for about 20% YoY revenue growth in 2Q26; Zoomlion expects growth to improve as FX headwinds ease and overseas momentum broadens.

Analysis framework

The report breaks down monthly excavator sales into domestic and export demand, and combines OEM price adjustments, feedback from company meetings, and valuation methods to assess industry momentum. For individual stocks, it discusses the valuations and risks of Zoomlion Heavy Industry, Sany Heavy Industry Co., Ltd., and Jiangsu Hengli Hydraulic Co.Ltd using methods such as P/E multiples, A-H premium, and DCF.

Methodology notes

• Valuation methodP/E valuation

  Apply target P/E multiples based on 2026e earnings

  Zoomlion H-share valuation is based on 13x 2026e P/E, while the A-share target price is derived using a 20% A-H premium, implying 18x 2026e A-share P/E; Sany is valued based on 23x 2026e EPS (excluding FX losses).

• Valuation methodDCF valuation

  Discount long-term cash flows

  Jiangsu Hengli Hydraulic Co.Ltd's humanoid robot components business uses DCF, discounting 2025-50e cash flows, with WACC at 11% and terminal growth at 4%.

• Industry analysisSales and demand decomposition

  Break down sources of momentum by domestic sales, export sales, replacement demand, and overseas share gains

  The report uses May and 5M26 sales growth to gauge the industry's cycle position, and combines electric-model replacement, the pace of special bond issuance, overseas regional share gains, and price increases to assess subsequent margins.

Asset mapping & comparison

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

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

  Construction machinery OEM, affected by domestic replacement demand and overseas expansion

  Strengths

  Broader overseas momentum and potentially easing FX headwinds; H-share valuation is based on 13x 2026e P/E, while A-shares are derived using a 20% A-H premium.

  Weaknesses

  Short term is still affected by FX losses, and improved growth requires continued delivery of overseas momentum.

  Comparison

  The H-share valuation multiple is in line with the 2017-26 average of 13x P/E, while A-shares imply 18x 2026e P/E.

  Risks

  Infrastructure and property investment below expectations, and overseas demand below expectations; upside risks include replacement demand from emissions-standard upgrades and stronger-than-expected demand for excavators and aerial work platforms.

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

  Leading construction machinery company, affected by overseas demand, excavator mix, and price stability

  Strengths

  The company guided for about 20% YoY revenue growth in 2Q26, supported by overseas demand, a better excavator product mix, and stable prices.

  Weaknesses

  Intensifying competition could weaken pricing power, and sales in overseas emerging markets could come in below expectations.

  Comparison

  Valuation uses 23x 2026e EPS (excluding FX losses), referencing the roughly 23x average P/E during the 2016-17 domestic construction machinery upcycle.

  Risks

  Competition leading to weaker-than-expected pricing power, and overseas emerging-market sales below expectations; upside risks include stronger-than-expected pricing power, stronger infrastructure and property construction activity, and faster-than-expected overseas penetration.

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

  Hydraulic component supplier for construction machinery, also involving valuation of humanoid robot components business

  Strengths

  The core business is valued at 35x 2026e P/E, while the humanoid robot components business uses DCF, resulting in a combined target price of Rmb133.

  Weaknesses

  Dependent on demand for excavators and pumps/valves in China, as well as expansion in non-excavator components.

  Comparison

  The valuation covers both the core hydraulic business and long-term cash flows from robot components, making it more dependent on delivery of new businesses than pure construction machinery parts valuation frameworks.

  Risks

  Sharp declines in demand for excavators and pumps/valves in China, failure to expand share in non-excavator components, and slower-than-expected penetration of humanoid robots.

• China's excavator/construction machinery industry

  The report's core research focus, reflecting cyclical changes in domestic investment, equipment replacement, and export share gains

  Strengths

  Total sales, domestic sales, and export sales in May all maintained high double-digit YoY growth; price increases are expected to improve margins.

  Weaknesses

  The industry is still affected by fluctuations in property and infrastructure investment, overseas geopolitical disruptions, fuel prices, and the competitive landscape.

  Comparison

  May growth was clearly stronger than previous fears, while cumulative export growth of 33% in 5M26 shows overseas demand resilience stronger than risks in any single region.

  Risks

  Slowing domestic investment, weakening overseas demand, and intensified competition putting pressure on prices or margins.

Key data

• May excavator sales+36% YoY, -14% MoMCumulative 5M26 growth was 25% YoY.
• May domestic sales+39% YoYCumulative 5M26 growth was 18% YoY, driven by front-loaded issuance of local government special bonds and replacement demand for electric models.
• May export sales+34% YoYCumulative 5M26 growth was 33% YoY, with share gains in regions such as Europe, Latin America, and Africa offsetting some geopolitical and fuel price pressure.
• OEM price hikesEffective from mid-May to JuneSany, XCMG, Liugong, and others raised prices, which the report believes will help margin recovery.
• Sany 2Q26 revenue guidanceAbout +20% YoYDrivers include overseas demand, a better excavator product mix, and stable pricing.
• Zoomlion H-share valuation13x 2026e P/EThe A-share target price is derived using a 20% A-H premium, implying 18x 2026e A-share P/E.
• Jiangsu Hengli Hydraulic Co.Ltd target priceRmb133Derived by combining 35x 2026e P/E for the core business and DCF for humanoid robot components.

Impact & implications

If strong sales growth, export resilience, and the price-hike trend continue, revenue growth and margin recovery for construction machinery companies could be stronger than previously expected by the market. The report remains positive on the global construction machinery upcycle, but also notes that infrastructure and property investment, overseas demand, the competitive landscape, FX, and the pace of new-business penetration remain key variables.

Risks

• Infrastructure and property investment growth below expectations could suppress domestic construction machinery demand.
• Overseas demand below expectations, especially sales performance in emerging markets falling short of expectations.
• Intensifying competition weakens OEM pricing power, causing price-hike effects and margin recovery to fall short of expectations.
• Although FX losses are considered more short term and largely priced in by the market, they may still affect near-term earnings.
• Slower-than-expected penetration of humanoid robot components may affect related valuation assumptions for Jiangsu Hengli Hydraulic Co.Ltd.
• Morgan Stanley discloses potential conflicts of interest such as investment banking relationships, shareholdings, or market making with some covered companies, and investors should treat this report as only one factor in decision-making.

What to watch

• Whether domestic and export excavator sales in June and thereafter can sustain strong growth.
• Order acceptance and margin changes following price hikes by OEMs such as Sany, XCMG, and Liugong.
• The pace of local government special bond issuance and its pull-through effect on physical infrastructure workload.
• The sustainability of replacement demand driven by emissions-standard upgrades and electric models.
• Whether share gains in overseas markets such as Europe, Latin America, and Africa continue to materialize.
• Whether Sany's guidance for about 20% revenue growth in 2Q26 and Zoomlion's improving overseas momentum can be delivered.