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        Construction & Farm Machinery Industry

        Date:Nov 12,2012

        Importance of infrastructure reiterated on 18th Congress,Good sign for leading machinery makers18th Congress kicks off. Wen Jiabao emphasizes the importance ofinfrastructure construction during his opening speech. We expectgrowth momentum of construction machinery sector will regain in2013. We like Zoomlion, the leading players, for its solid profitabilityand abundance of net cash on hand at Rmb1,762mn as of 3QFY12, vs.

        net debt of Sany at Rmb16,489mn and net debt of XCMG atRmb4,315mn. We revise up our earnings forecast, as well as the targetprice from HK$12.12 to HK$14.16. Maintain “Buy” rating as thebottom out of upstream construction industry.

        We expect more construction in 2013. We expect that China’sconstruction machinery makers benefit from the stimulus fuelled reboundin 2013. The new order index on construction services (sub index ofnon-manufacturing PMI) was staying above 50% for 8 consecutive monthssince March. We expect that the construction projects will maintain at ahigh momentum in 2013. We like Zoomlion because of its leading positionin concrete machinery market with net cash position.

        The Group has a solid earnings performance. The Group managed toimprove its GPM and posted flat YoY growth in bottom line in 3QFY12,while its largest peers, Sany (600031 CH) and XCMG (000425 CH)suffered from margin contraction and posted sharp decline in net income.

        TypeInfo: news

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