In 2018, with the continuous momentum from increasing export demand and ongoing innovation of products, construction machines’ sales keep going strong. The main products had a double-digit growth in the first five months of 2018 which exceeds expectation. Construction machines have an average life expectancy of around 10 years. As the last industry’s fast-growing period is 2007-2011, as a result, there will be a demand for construction machinery replacement in the next 2 to 3 years. Apart from that, the Chinese government has been proactively publishing environmental policies which eliminates equipment that fail to meet the national environmental standard from the market. China is also setting stricter standards for pollutant discharge gradually, which will also aid the industry’s growth. On the other hand, with the global economy recovery, more infrastructure investment is made in emerging countries which leads to a surging demand of global construction machinery. China’s “The Belt and Road Initiative” speeds up the construction of infrastructure such as railway, highway and port and connect countries along five routes, which helps increase overseas sales of construction machinery. Zoomlion (1157) is a manufacturer of construction machinery and sanitation equipment. The company sold 80% of its environmental equipment unit for 11.6 billion yuan and focus on engineering and agricultural equipment. Benefiting from “The Belt and Road Initiative”, Zoomlion’s business has been improving since last year. Its revenue increased 20.58% in the first quarter of 2018, while the revenue of construction machinery sector increased 80% YoY and tripled its quarterly earnings. We expect Zoomlion will continue to be benefit from the recovery of the industry and maintain its rapid earnings growth rate and high dividend payout ratio. More room will be provided for the company to further improve its valuation. Investors may accumulate Zoomlion’s shares as a medium/long term investment.

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