We believe that manufacturers with high product added value and comprehensive gross profit margins are less affected; Industries with harsh competitive environments will be greatly impacted, making business operations more difficult. Taking into account the development status of the industry, the high or low gross profit margin of the company, the industry status, and the competitive environment, we believe that listed companies in certain sub industries of construction machinery and CNC machine tool industry can still be areas that investors need to focus on.

Risk statement

Macro tightening risk. The Central Economic Work Conference, which concluded on December 5, 2007, revealed important information that the "prudent monetary policy" that had been implemented for ten years would be adjusted to a "tight monetary policy". Although the impact of regulation has not yet appeared, this does not rule out the possibility of future occurrence.

The sustained appreciation of the Renminbi. In recent years, domestic companies have increased their efforts to explore overseas markets, and export revenue has become an important source of profit for some companies. The cost-effectiveness advantage is the biggest advantage of China's machinery industry exports, but once the RMB continues to depreciate, it will inevitably squeeze the profit margins of export enterprises.

The cost of raw materials continues to rise. The rise in raw material prices, represented by steel, will undoubtedly cause an increase in industry costs. Due to the time difference between ordering and shipping, an increase in steel prices will result in a decrease in profits for machinery companies. Moreover, some sub industries have overcapacity, making it difficult to raise product prices accordingly. This has a significant impact on sub industries with a high proportion of raw material costs and strong competition, such as shipbuilding and mechanical parts industries.

Some sub industries have overcapacity. The investment in the machinery industry has a certain periodicity. Due to the rapid market growth in previous years, the loader and forklift industries have attracted a large amount of investment. Currently, there is a relative overcapacity, and if there are downstream fluctuations, it will cause a decline in the industry's prosperity. The entry threshold for sub industries such as ordinary machine tools and mechanical components is relatively low, and market competition is relatively sufficient. When demand decreases, existing production capacity will also be relatively surplus.

The long-term positive trend of the industry remains unchanged

The revitalization of the mechanical industry is the only way for our economic development. We believe that the recent increase in steel prices is the result of a reassessment of international asset prices, and other raw material prices will also follow suit and rise in the future. The significant increase in raw material costs, represented by steel, requires a rational analysis of its impact on the company.

We believe that the rise in steel prices has little impact on the industry's overseas markets. From the current development status of the industry, the small sub sectors that participate in overseas markets are mainly the shipbuilding industry and the construction machinery industry. The advantage of these two industries in the international market is cost-effectiveness, which means that under the same performance conditions, the price of Chinese products is lower. The driving force behind the increase in steel cost prices this time comes from the global market's rise in iron ore prices. Therefore, similar foreign companies will inevitably have to bear the rise in steel cost prices, and future product price increases should also be expected, although the magnitude of price increases may vary. Furthermore, considering the high cost-effectiveness advantage of our products, even if the cost increases, it will not fundamentally affect the competitive advantage of our products. In other words, a 10% increase in product prices will not affect the competitive advantage of our products.

In the domestic market, an increase in cost prices can only lead to a rise in prices, ultimately resulting in some or all of the costs being transferred downwards. The current situation may be that certain industries with fierce competition and relatively low gross profit margins may be greatly impacted, which may ultimately lead to an overall reshuffle of the industry landscape. This is something we should focus on.

In the short term, the recent increase in steel prices has undoubtedly had a negative impact on industry manufacturers, squeezing their profit margins. However, in the long run, this steel price also sends a signal to the entire industry that the revitalization of the machinery industry relies on independent innovation and measures to increase product added value. Therefore, the rise in steel prices is an opportunity for the transformation of the industry's development mode.

*Choose a company with strong resilience

The rise in steel cost prices can be addressed by listed companies through various measures: increasing the added value of products, improving gross profit margins, and thus maintaining the company's profit margin; The company has strong bargaining power over downstream customers, so it can transfer a portion of raw material costs to downstream customers; The main listed companies in a certain segmented industry form a price alliance to transfer a portion of raw material costs to downstream customers, but due to the lack of constraints, the feasibility is poor. Based on the above analysis, if the company's industry advantages are not very prominent and the industry competition is relatively fierce, then the company will face significant cost pressure.

From the current situation, the significant increase in steel prices beyond expectations may be the main factor affecting the development of the industry. The rise in steel prices should be equal for all manufacturers, both domestically and internationally. The difference lies in the degree of increase, but it does not affect the substance. The company's ability to withstand cost increases will be the focus of our investment. Enterprises with obvious industry advantages, such as Sany Heavy Industry and Zoomlion Heavy Industry, will further expand their * * advantages. For industries with fierce competition and price wars, it is undoubtedly adding fuel to the fire, which may cause a reshuffle of the industry. Companies will stand out from the fierce competition and establish the competitive landscape of the industry.

We believe that manufacturers with high product added value and comprehensive gross profit margins are less affected; Industries with harsh competitive environments will be greatly impacted, making business operations more difficult. Taking into account the development status of the industry, the high or low gross profit margin of the company, the industry status, and the competitive environment, we believe that listed companies in certain sub industries of construction machinery and CNC machine tool industry can still be areas that investors need to focus on.

Risk statement

Macro tightening risk. The Central Economic Work Conference, which concluded on December 5, 2007, revealed important information that the "prudent monetary policy" that had been implemented for ten years would be adjusted to a "tight monetary policy". Although the impact of regulation has not yet appeared, this does not rule out the possibility of future occurrence.

The sustained appreciation of the Renminbi. In recent years, domestic companies have increased their efforts to explore overseas markets, and export revenue has become an important source of profit for some companies. The cost-effectiveness advantage is the biggest advantage of China's machinery industry exports, but once the RMB continues to depreciate, it will inevitably squeeze the profit margins of export enterprises.

The cost of raw materials continues to rise. The rise in raw material prices, represented by steel, will undoubtedly cause an increase in industry costs. Due to the time difference between ordering and shipping, an increase in steel prices will result in a decrease in profits for machinery companies. Moreover, some sub industries have overcapacity, making it difficult to raise product prices accordingly. This has a significant impact on sub industries with a high proportion of raw material costs and strong competition, such as shipbuilding and mechanical parts industries.

Some sub industries have overcapacity. The investment in the machinery industry has a certain periodicity. Due to the rapid market growth in previous years, the loader and forklift industries have attracted a large amount of investment. Currently, there is a relative overcapacity, and if there are downstream fluctuations, it will cause a decline in the industry's prosperity. The entry threshold for sub industries such as ordinary machine tools and mechanical components is relatively low, and market competition is relatively sufficient. When demand decreases, existing production capacity will also be relatively surplus.