In the mechanical equipment industry, we focus on 11 key sub-sectors: general equipment, lithium battery equipment, photovoltaic equipment, wind power equipment, 3C equipment, oil and gas equipment, testing services, engineering machinery, packaging equipment, railway equipment,

(report producer: Yangtze Securities)

022H1 The overall financial data of the machinery industry has declined, and the sectors have performed significantly differentiated

The machinery and equipment industry We focus on 11 key sub-sectors: general equipment (including industrial control automation, industrial robots, laser equipment , machine tool tools, forklifts, 5 sub-sectors), lithium battery equipment, photovoltaic equipment, wind power equipment, 3C equipment, oil and gas equipment, testing services, engineering machinery, packaging equipment, railway equipment, and semiconductor equipment.

2022H1 The revenue growth rate of the machinery and equipment industry has declined, and net profit has increased slightly negatively.

From the perspective of operating income, the machinery and equipment industry achieved revenue of 989.267 billion yuan in 2022H1, an increase of 1.2% year-on-year, and the revenue growth rate has declined. By quarter, the revenue growth rates of Q1-Q2 in 2022 were +5.9% and -2.0% respectively, and the revenue in the second quarter showed a year-on-year decline. Since the beginning of this year, the epidemic factors and relatively high raw material prices combined with the high base effect of in the same period last year, the overall prosperity of the manufacturing industry has declined, and capital expenditure has weakened. By industry, the revenue of construction machinery and railway equipment, which accounted for a large proportion of revenue in 2022H1, decreased by 35.3% and 8.4% year-on-year, dragging down the overall revenue of the sector. The special equipment tracks such as lithium battery equipment (+70.8%), semiconductor equipment (+55.7%), photovoltaic equipment (+47.4%) continue to be prosperous. The revenue in 2022H1 maintained a high growth rate, with the year-on-year growth rate among 11 key sub-sectors. By quarter, 1) The revenue growth of oil and gas equipment, testing services, and 3C equipment in 22Q2 accelerated; 2) Although the revenue growth rate of photovoltaic equipment, lithium battery equipment, and semiconductor equipment in 22Q2 has declined, it still maintains a good level; 3) The decline in construction machinery revenue in 22Q2 has slightly expanded.

In terms of net profit attributable to shareholders, the mechanical equipment industry achieved net profit attributable to shareholders of RMB 64.45 billion, a year-on-year-on-year. The sub-sectors have obvious differentiation. Among the 11 key sub-sectors, the sub-sectors have fallen more than the sub-sectors. On the one hand, construction machinery, which accounts for a large proportion of net profit attributable to shareholders, is still subject to the downward trend in the industry cycle and the relatively high price of raw materials. The net profit attributable to shareholders in 2022H1 decreased significantly year-on-year by 59.2%. In addition, the net profit attributable to shareholders of wind power equipment (-53.8%), packaging equipment (-16.8%), railway equipment (-10.7%) and other sectors also showed a decline. On the other hand, the year-on-year growth rate of net profit attributable to shareholders of key sub-sectors such as semiconductor equipment (+86.1%), testing services (+62.3%), photovoltaic equipment (+60.0%), and lithium battery equipment (+42.8%) was relatively high. In addition, oil and gas equipment benefited from the high price of crude oil. Upstream capital expenditure has risen since the second half of last year, and industry orders have resumed rapid growth. Coupled with the exchange rate factors, the net profit attributable to shareholders in 2022H1 increased by 32.7% year-on-year, and the prosperity level has rebounded significantly compared with last year.

htmlFrom 0 quarters, the net profit attributable to shareholders of the machinery and equipment industry in 2022 Q1-Q2 was -11.7% and -9.9% year-on-year respectively. According to specific details, 1) The growth of net profit attributable to shareholders of semiconductor equipment (+106.3%) and photovoltaic equipment (+71.1%) in 2022Q2 accelerated, and the growth rate of testing services (+62.1%) remained at high; 2) The growth rate of net profit attributable to shareholders of 3C equipment and railway equipment turned positive; 2) 22Q2 Construction machinery and wind power equipment are subject to higher raw material costs, and the net profit attributable to shareholders of 3C equipment and railway equipment still declined significantly. However, in 22Q2, the decline in net profit attributable to shareholders of construction machinery expanded month-on-month, while wind power equipment narrowed.

From the perspective of gross profit margin, the gross profit margins of most key sub-sectors fell year-on-year. The gross profit margin of the machinery industry in 2022H1 was 19.9%, a year-on-year decrease of 1.3pct. Except for the gross profit margins of the sub-sectors (+3.6pct), testing services (+3.3pct), and photovoltaic equipment (+1.9pct) that have improved year-on-year, the gross profit margins of the other sectors have all declined to varying degrees. Among them, sectors with a significant year-on-year decline in gross profit margin include wind power equipment (-9.4pct), packaging equipment (-6.4pct), lithium battery equipment (-3.7pct), and engineering machinery (-3.3pct).

gross profit margin according to quarterly perspective, the gross profit margin of the machinery industry in 2022Q2 was 20.1%, a year-on-year decrease of 1.3pct, but a slight improvement of 0.3pct in the first quarter of this year. In terms of segments, the gross profit margins of semiconductor equipment (+3.8pct), testing services (+3.1pct), photovoltaic equipment (+2.1pct) sectors have improved compared with the same period last year, and the gross profit margins of sub-sectors such as wind power equipment (-8.7pct), packaging equipment (-8.7pct), oil and gas equipment (-4.5pct) have declined significantly year-on-year.In addition, the gross profit margins of most key sub-sectors showed marginal improvements in 22Q2, among which the gross profit margins of oil and gas equipment (+2.7pct), semiconductor equipment (+1.5pct), and lithium battery equipment (+1.3pct) sectors ranked first in the first quarter of this year.

From the perspective of net profit margin, the net profit margin of the machinery and equipment industry in 2022H1 was 6.5%, a year-on-year decrease of 0.9pct from 2021H1. The performance of each segment is differentiated, and the net profit margins of semiconductor equipment (+2.9pct), testing services (+2.5pct), photovoltaic equipment (+1.8pct) and other sectors have increased significantly. The net profit margins of sectors such as wind power equipment (-7.4pct), construction machinery (-4.1pct), packaging equipment (-3.6pct) have declined significantly year-on-year, and the decline in gross profit margin may be an important reason.

net profit margin according to quarterly perspective, Q2 net profit margin improved margin in the machinery industry. In 2022Q2, the net profit margin of the machinery industry fell by 0.6pct year-on-year, but increased by 1.0pct month-on-month compared with the first quarter of this year. According to the segment segments, driven by the increase in gross profit margin in 2022Q2, the net profit margins of semiconductor equipment (+6.1pct), photovoltaic equipment (+3.5pct), and testing services (+2.5pct) increased year-on-year, while the net profit margins of wind power equipment (-4.7pct), packaging equipment (-4.4pct), and construction machinery (-4.2pct) sectors decreased significantly compared with the same period last year. In addition, the Q2 net profit margins of most sectors improved month-on-month compared with the first quarter of this year, and the net profit margins of semiconductor equipment (+11.7pct), oil and gas equipment (+4.8pct), and railway equipment (+3.6pct) sectors improved significantly compared with the first quarter of this year.

Other important financial indicators: In-hand orders are at a good level, operating cash flow declined year-on-year

Contract liabilities + advance payments continue to increase, indicating that the industry in-hand orders are at a good level. 2022H1 Machinery Industry Contract Liabilities + Prepayments were RMB 329.275 billion, up 17.4% year-on-year, an increase of 8.2% from the end of 2021. Most key sub-sector contract liabilities + prepayment increased year-on-year. In 2022H1 lithium battery equipment (+89.2%), semiconductor equipment (+65.3%), and photovoltaic equipment (+38.9%) benefited from the industry's high prosperity, with relatively good orders, and contract liabilities + prepayment increased significantly compared with 2021H1 in the same period. At the same time, orders for 3C equipment (+109.4%) and oil and gas equipment (+60.9%) have significantly warmed up, which may indicate that industry demand is being repaired.

2022H1 The operating cash flow of the machinery industry may be greatly reduced due to the impact of the epidemic. 2022H1 The operating cash flow of the machinery and equipment industry was RMB 4.034 billion, a year-on-year decrease of RMB 2.31 billion. It may be due to the impact of the epidemic, equipment acceptance and revenue recognition are relatively lagging, and cash income in some industries is characterized by quarterly characteristics. 22H1 The operating cash flow of key sub-sectors such as railway equipment and semiconductor equipment was significantly outflowed, while the operating cash flow of the construction machinery sector decreased significantly year-on-year, while the operating cash flow of oil and gas equipment was significantly improved.

Asset turnover rate decreased slightly year-on-year, and the overall operational capacity of the industry may decline. The total asset turnover rate of the machinery industry in 2022H1 reached 0.26, a slight decrease from 2021H1. 2022H1 The asset turnover rate of most key sub-sectors decreased year-on-year, while the total asset turnover rate of lithium-electric equipment, photovoltaic equipment, oil and gas equipment, and testing services increased year-on-year.

focuses on the economic track and areas where demand marginal improvement

General equipment: Domestic demand is under pressure, industrial control and tool industries have relatively resilience in performance.

Since the second half of last year, the manufacturing PMI has weakened, manufacturing capital expenditure is relatively weak, and domestic demand is under pressure. At the same time, the high prices of raw materials at the beginning of the year and the tight supply of core components such as chips have an impact on the profitability of major companies. Through the split, we found that the sub-industry has the following characteristics:

1) The sluggish demand combined with the impact of the epidemic, domestic demand is under pressure, and the performance resilience of the industrial control and tool industries is relatively resilient by splitting quarterly revenue. The quarterly year-on-year growth rate of the industrial control and tool industries is relatively better than other industries listed, mainly due to the downstream price increase of enterprises in the automation industry and the periodic volatility of consumable attributes. Judging from the situation (gross profit margin-sales expense ratio), most general equipment sub-industry performed relatively stable, while the price war in laser and laser equipment links has intensified in recent years, which has a great impact on the sector's gross profit margin. The sector (gross profit margin-sales expense ratio) fell by 5pct year-on-year.

2) Export demand maintains a certain growth, and its profitability is basically the same. The overseas revenue of export companies has maintained a certain growth. The negative revenue growth rate of Jack Co., Ltd. and Lingxiao Pump Industry is mainly due to the large decline in domestic revenue. In 22H1, Jack Co., Ltd. and Lingxiao Pump Industry's overseas revenue increased by 31.03% and 36.27% year-on-year. In terms of profitability, the strengthening of foreign currency exchange rates helps interest rates maintain a good level. At the same time, export companies generally have strong negotiating power. Although some products exported to the United States have been affected by tariffs since last year, some companies have eased the situation by building factories in Southeast Asia, and have hedged the freight and other factors by raising prices downstream. Therefore, the (gross profit margin-sales expense ratio) indicator shows that the major companies maintained a good level in 22Q2 on the same month-on-month.

Looking back, China's manufacturing PMI in June was 50.2%, returning to above the critical point; PMI in July was 49.0%; and PMI in August was 49.4%, an increase of 0.4pct compared with the previous month. Credit is the leading indicator of capital expenditure in manufacturing, and Japanese machine tool sales orders to China are synchronous indicators of capital expenditure in manufacturing. In July, new medium- and long-term loans of enterprises were 345.9 billion yuan, a year-on-year 29.9%. However, from the average of mobile December, the growth rate of medium- and long-term loans of enterprises had reached a turning point in June, and the reduction in July was relatively small, and it is still expected to open an upward channel in the future. From the situation of Japan's machine tool export orders to China, it can also be seen that the growth rate turned positive in June, and the growth rate in July fell slightly year-on-year, and the downward cycle has exceeded half, which also reflects that the manufacturing capital expenditure cycle is expected to show an upward turning point within the year. From the downstream perspective, the advanced manufacturing lithium battery, photovoltaic and semiconductor sectors continue to have strong certainty this year. Under the premise of loose credit, the turning point of capital expenditure in manufacturing is expected to appear within the year.

Photocoptical equipment: Performance growth has accelerated, orders are in hand are full, profitability continues to improve

2022H1 The revenue and overall performance of the photovoltaic equipment sector has accelerated, and the performance of the segmented links is differentiated, silicon wafer and component links perform better than battery . Here, we selected 10 representative companies in silicon wafers (Jingsheng Mechanical and Electrical, Liancheng CNC, Gaote Shares , Meichang Shares), batteries (Jiejia Weichuang, Dier Laser, Maiwei Shares ) and component links (Otway, Roboteco, Jinchen Shares) as samples for analysis. In 2022H1, the photovoltaic equipment sector achieved revenue of 16.378 billion yuan, a year-on-year increase of 47.44%, and the net profit attributable to shareholders was 3.719 billion yuan, a year-on-year increase of 60.04%. The revenue and net profit attributable to shareholders continued to maintain high growth compared with 2021 and the growth rate expanded. Among them, the revenue in 2022Q2 was 9.093 billion yuan, an increase of 45.39% year-on-year, and the net profit attributable to shareholders was 2.12 billion yuan, an increase of 71.09% year-on-year. The photovoltaic equipment industry as a whole continues to have a high prosperity. Judging from the

segmentation, in 2022H1, the revenue and performance of silicon wafer and module links are still better than those of battery-cell link companies, becoming an important growth driver for the sector. Specifically, the year-on-year revenue growth rate of silicon wafer and component-link equipment companies added in 2022H1 was +87.00%/+32.61%, respectively, and the year-on-year revenue of battery cell equipment companies increased by 14.38%; the year-on-year revenue growth rate of silicon wafer and component-link equipment companies added in 22Q2 was +86.43%/+26.37%, respectively, and the year-on-year revenue of battery cell equipment companies increased by 9.12%. Corresponding to the performance end, the year-on-year growth rate of net profit attributable to shareholders of silicon wafer and component equipment companies in 2022H1 was +89.03%/+37.76%, respectively, and the year-on-year net profit attributable to shareholders of battery cell equipment companies was +26.16%; the year-on-year growth rate of net profit attributable to shareholders of silicon wafer and component equipment companies in 22Q2 was +119.44%/+32.38%, respectively, and the year-on-year net profit attributable to shareholders of battery cell equipment companies was +18.90% year-on-year. The profit growth of silicon wafer link equipment has accelerated significantly in 22Q2. At the same time, the profit growth of equipment in all links is faster than revenue, and profitability has improved. We believe that the main reason is that 1) In the past two years, upstream silicon materials and silicon wafers have been in short supply and continued to rise in prices. 21 years is the year of expansion of silicon wafer production. New signing and in-hand orders of related equipment companies have increased rapidly, and silicon wafer prices are still at a high level and profits in 22 years. Equipment companies have accepted and confirmed them quickly, and the performance has achieved high growth; 2) Battery chips are restricted by the high prices of upstream raw materials last year and the industry's technical route selection is not clear. The slowdown in the growth rate of new orders in 2021 affects this year's revenue recognition.At the same time, the epidemic factors in the first half of the year further extended the acceptance progress of battery cell equipment, and revenue and performance growth were further suppressed. Therefore, the revenue and performance growth rate of battery cell links were not as good as those of silicon wafers and module links. 3) The component link mainly benefits from the release of new dividends of large-size equipment and the vigorous expansion of production at the component end, especially the leading Aotway's high revenue and performance growth, which contributed to the main increase in the sector.

New signing of photovoltaic equipment sector and full orders in hand can support the continued high growth in performance. Among them, the contract liabilities of silicon wafer and component links are higher than that of battery pack links. Due to changes in accounting policies, based on the prepayment (contract liabilities), the contract liabilities scale of the photovoltaic equipment sector in 2022H1 was 17.459 billion yuan, an increase of 38.88% year-on-year. Overall, benefiting from the continued prosperity of the industry, the current contract liabilities reflect that the in-hand orders of the sector equipment companies are relatively full. According to the confirmation cycle of photovoltaic equipment, the current in-hand orders can support the continued rapid growth of performance in 22 years. In terms of segmentation, the growth rate of contract liabilities in silicon wafer and module links is better than that in battery cells. The contract liabilities of the total silicon wafer and module link equipment companies in 2022H1 were +81.07%/+34.34% respectively. During the same period, the contract liabilities of the battery cell equipment company increased by 9.81% year-on-year. Looking back, we believe that 1) 2022 will still be the peak of silicon wafer production expansion, and the order growth rate will maintain high growth. It is expected that by next year, after the upstream silicon material and silicon material production capacity is released, the price center will move downward to drive the profit redistribution of the photovoltaic industry chain, and next year, the oversupply of silicon wafer production capacity may slow down, and the growth rate of new orders for equipment in the silicon wafer link may be under certain pressure, but the demand for diamond wires and other requirements in the consumables link is relatively sustainable. 2) The current growth rate of equipment orders for battery cells is mainly due to the high base in the same period last year. At the same time, due to factors such as the epidemic in the first half of the year, the implementation of new technology battery bidding is less than expected. However, after the second half of the year, new technology batteries are expected to usher in a period of intensive bidding and production expansion; at the same time, the upward trend in battery profits drives PERC battery production expansion beyond expectations, and the annual PERC production expansion may be close to 100GW. During the expansion cycle of new technology batteries, the value of equipment has been significantly improved compared with PERC, and the high growth in equipment demand and high elasticity attributes are highlighted. Battery cell equipment orders are expected to usher in rapid growth. 3) The downstream installation is strong, and the component-side equipment directly benefits. The new installed capacity is expected to reach 250GW this year, and 350GW will be further raised next year. The growth rate of new installed capacity remains at a good level, coupled with the release of large-size dividends in the past two years, and the iteration of technology iterations in the battery cell and component links is expected to maintain high growth.

Thanks to the increase in acceptance proportion of new equipment such as large sizes, the gross profit margin and net profit margin of the photovoltaic equipment sector are both showing an improvement trend. Overall, the gross profit margin and net profit margin of the photovoltaic equipment sector in 2022H1 showed an overall improvement trend, and the gross profit margins of silicon wafers, battery cells and components all increased year-on-year. Among them, the gross profit margins of silicon wafers, battery cells, and module equipment in 2022Q2 +0.56pct, +2.21pct, +0.64pct respectively year-on-year; the net profit margins +4.16pct, +1.82pct and +0.51pct respectively year-on-year. We believe that the improvement of sector profitability is mainly due to the increase in acceptance of new equipment such as large sizes with high gross profit margins and the improvement in operating efficiency. Overall, the current equipment companies' orders in hand are basically large in size. With the iteration of new technologies, especially in 2022, new technologies are frequently iterated in the battery cell and component links, and new orders are basically mainly new technology products, and the gross profit margin is expected to rise steadily.

Overall, the global installed capacity is expected to be neutral in 2022 and there is room for upward adjustment. The global installed capacity is expected to reach 350GW in 2023. At the same time, the profits of the photovoltaic industry chain may be transferred to the battery and module links in 2023, and the profits of the battery and module links are expected to improve, the production expansion trend is clear, and the iteration of new technologies in the battery and module links is accelerating. Considering the trend of production expansion in different links and technological iterations, the benefits may be based on the certainty of the economy and the elasticity of equipment growth in the industrial chain. In the battery cell stage, the iteration of new technologies will greatly improve the elasticity of equipment demand in the battery stage. In the 22 years, the new expansion will be mainly new technologies such as TOPcon, IBC, and HJT with higher investment. The growth rate of the equipment market is expected to exceed the expansion rate, achieving more than double growth.Since some process equipment of TOPcon and IBC overlap with PERC, offline this year's production expansion technology road, battery equipment focuses on selecting companies with obvious value improvement and better structure, focusing on investment opportunities brought by benefiting technology iteration and laser application expansion. In the component link, as the last link of the photovoltaic manufacturing industry chain, the technical changes in the silicon wafer and battery links will be transmitted to the module, and there are also many technical changes in the component link itself. Judging from the string welding process requirements, the large size of the silicon wafer, the expansion of the battery cell HJT, XBC production, and the SMBB of the component end are expected to bring about the need for updates and replacement of the string welding machine. The iteration of new technology will significantly improve the demand elasticity of the equipment. Against the backdrop of vigorous expansion of components, coupled with the increased penetration rate of new technologies, it is expected that the market size of component string welding machines in 2022 will exceed 6 billion yuan, with a significant acceleration in growth, and it is expected to maintain a growth rate of more than 30% in the next two years. Judging from the silicon wafer link, the current profitability of silicon wafers is still relatively good. Leading silicon wafer manufacturers and new entrants have expanded production. In addition, there is still some small-size production capacity renewal demand, and the demand for silicon wafer equipment orders in 22 years is expected to continue to grow.

lithium battery equipment: Revenue has maintained high growth, and the scale effect of some enterprises has shown

lithium battery equipment sector. We selected 23 listed companies that have lithium battery equipment business and have disclosed their lithium battery equipment revenue in the semi-annual report, and summed up the revenue of their lithium battery equipment business. It can be seen that the revenue of the lithium battery equipment industry continued to maintain high growth in the first half of 2022, with the revenue growth rate of nearly 80% in 2022H1. Lithium battery equipment company's revenue in the first half of 2022 was mainly reflected in orders in 2021. Since 2020, the global new energy vehicle industry has maintained a high prosperity, and the penetration rate of new energy vehicles at home and abroad has increased rapidly, driving downstream battery factories to increase production expansion. In 2020H2, the leading battery factory represented by CATL was the first to expand production; in 2021, in addition to the leading battery factory, second-tier battery factories also launched large-scale expansion plans and gradually implemented them. Lithium battery equipment benefited from the large-scale expansion of battery factories and rapid growth in orders. Since 2021, orders have been gradually accepted, promoting high growth in industry revenue. In the first half of 2022, the revenue growth rate of the lithium battery equipment industry slowed down compared with 2021, mainly due to the impact of the epidemic in the second quarter on business trips of equipment companies and equipment adjustment and testing of equipment in battery factories. The contract liabilities (or advance payment) of lithium battery equipment companies reflect the situation of their orders in hand. We selected some companies with a large proportion of revenue in lithium battery equipment business. It can be seen that their contract liabilities have continued to rise since Q1 2020, proving that the industry's orders are growing rapidly, which is highly likely to drive the industry's high revenue growth in 2022 and 2023.

Further, we chose 14 companies with a large proportion of revenue in the lithium battery equipment business, and their overall revenue grew by 70.8% in 2022H1, of which, the growth rate in 2022Q1 reached 107.6%, and the growth rate in 2022Q2 was only 50.4%, which is mainly due to the impact of factors such as the epidemic, which has caused some companies' revenue growth rate to be low or declined. From the perspective of inventory, as of the end of 2022Q2, the overall inventory of 14 companies with a large proportion of revenue in lithium battery equipment business reached 28.57 billion yuan, an increase of 15.1% compared with 24.83 billion yuan at the end of 2022Q1, and the inventory scale hit a record high. Looking ahead to the second half of the year, it is expected that the lithium electric equipment company will accelerate acceptance of goods, and the annual revenue is expected to maintain high growth. In terms of gross profit margin, 15 listed companies that disclosed their revenue and gross profit of lithium battery equipment in the semi-annual report were selected to count the gross profit of their lithium battery equipment business. The gross profit margin of the lithium battery equipment industry in 2022H1 has improved, reversing the trend of continuous downward gross profit margin in recent years. From the second half of 2020 to the present, battery factories such as CATL, China Innovation Aviation, Honeycomb Energy, YI Lithium Energy , and Guoxuan High-Tech have all been on a large scale. In the second half of 2020, the industry orders began to grow at a high rate and continued to this day. At the same time, the industry bidding has gradually changed from a leading battery factory bidding to a number of battery factories, and the customer structure of lithium battery equipment companies has become more diversified. With the insufficient production capacity of lithium battery equipment, the bargaining power of equipment companies has been continuously enhanced. In addition, with the growth of the order scale of lithium battery equipment companies, it will help the company to intensive procurement, promote product standardization, and achieve low cost and fast delivery, thereby driving the further increase of gross profit margin.

Further, we chose 14 companies with a large proportion of revenue in the lithium battery equipment business. Overall, the gross profit margins of the industry in 2022H1 and 2022Q2 were under pressure, down 3.7 and 1.5 percentage points year-on-year respectively, but mainly due to the non-lithium battery business. If we only look at the lithium battery equipment business, the gross profit margins of lithium battery equipment companies have increased. In addition, the gross profit margin of equipment companies is affected by factors such as the increase in raw material prices. Pioneer Intelligent 2022H1 Lithium Battery Equipment Gross Profit Rate reached 37.07%, an increase of 1.3 percentage points year-on-year, while the gross profit margin of smart logistics business was only 17.57%, dragging down the overall gross profit margin, but compared with 2022Q2, it is expected to further improve in the future; Xianhui Technology has increased significantly due to the increase in demand for battery factories and the fierce competition, coupled with the rise in raw material costs and the decline in revenue, resulting in a sharp decline in gross profit margin; Lianying Laser Gross Profit Rate has steadily increased; Liyuanheng 's overall gross profit margin mainly due to the increase in revenue share of power lithium battery and its gross profit margin is lower than that of consumer lithium battery, but it is still at a high level in the industry. The overall gross profit margin of the industry was 29.7%, an increase of 1.3 percentage points from 2022Q1. In the future, with the accelerated acceptance of high-quality orders, the industry's gross profit margin is expected to further increase.

2022H1 The overall net profit of the sector maintained high growth, but there were also some differences. 2022H1 Funeng Oriental and Zhengye Technology declined the same time, with Xianhui Technology, Nebula shares and Huazi Technology losing money, mainly due to the decline in net profit in 2022Q2 or the loss was large; other companies achieved growth in 2022H1. Among them, Pioneer Intelligent, Liyuanheng, Lianying Laser, Haimuxing, Yinghe Technology, Hangke Technology and other 2022H1 and 2022Q2 all achieved high growth, and Xianhui Technology, Huazi Technology, Funeng Oriental, and Zhengye Technology 2022Q2 net profit attributable to shareholders fell sharply.

From the perspective of net profit margin, the industry's net profit margin in 2022H1 compared with 2021H1, mainly because the non-lithium battery business of enterprises in the industry dragged down the overall gross profit margin, resulting in a decline in net profit margin. 2022Q1 Affected by the epidemic, acceptance was delayed, the scale effect was not well reflected, and the net profit margin declined; in 2022Q2, although it was still affected by the epidemic, the net profit margin rebounded month-on-month due to the scale effect brought by the growth of revenue. The net profit margin of Pioneer Intelligent 2022Q2 has increased significantly on the same period last year; the scale effect of Lianying Laser and Haimuxing 2022Q2 has been well reflected, and the net profit margin has been greatly improved on the same month-on-month; Xianhui Technology 2022Q2 has suffered less acceptance and decline in revenue, resulting in a high expense ratio and a sharp decline in net profit margin; Liyuanheng and Hangke Technology 2022H1 net profit margin remains relatively stable, but due to the payment of more equity incentive fees in 2022, the net profit margin remains stable. If the equity incentive fees are added, the net profit margin will be significantly increased.

Since the second half of 2020, the lithium battery equipment industry has grown rapidly, supporting the lithium battery equipment industry's revenue growth in 2021. As the scale of orders and revenue expands, companies in the lithium battery equipment industry are expected to reflect the scale effect and their net profit margins are improved. Judging from the performance of 2022H1, the revenue of various companies in the lithium battery equipment industry has increased overall, but the growth rate of net profit has differentiated. The scale effect of some companies has been revealed, and the net profit margin has increased significantly. Some companies still have no significant scale effect. We believe that it is mainly affected by factors such as equity incentive fees, acceptance rhythm and different personnel growth rates. The acceptance rhythm is mainly due to epidemics in many places in China since 2022, resulting in logistics delays in incoming materials, delivery, etc., and the efficiency of production and acceptance has been reduced. The acceptance progress of different companies in 2022H1 has been affected differently. Equity incentive expenses affect the net profit of lithium battery equipment companies. Many lithium battery equipment companies conducted equity incentives around 2021. Judging from the estimated amortized expenses announced at the time of grant, the expenses are mainly concentrated in 2022 and 2023, among which the highest expenses in 2022, which greatly affected the net profit margins of some companies in 2022H1, and are expected to have a certain impact on the whole year of 2022. In the future, with the decline in revenue scale and expansion and the absolute amount of equity incentive expenses, the profitability of lithium battery equipment companies is expected to improve.

Since the second half of 2020, lithium battery factories have recovered from production expansion and equipment orders have begun to grow rapidly.In 2021, various lithium battery equipment companies have insufficient production capacity, and they are actively planning to expand production, recruiting personnel on a large scale, and the number of employees has grown rapidly, especially R&D and design personnel and production personnel. Based on the proportion of R&D personnel of each company, it is estimated that the number of employees will still grow rapidly in the first half of 2022, but the growth rates of different companies have differentiated. There are still a large number of personnel growth in Haimuxing, Lianying Laser, and the personnel growth in Hangzhou Technology and Xianhui Technology have increased slightly.

2021 and 2022H1 The number of employees of lithium battery equipment companies has grown rapidly. After the personnel are strengthened, they will improve production efficiency and expand production capacity. It is expected that the growth rate of industry personnel will slow down in 2022, and the problem of pre-expenses is expected to be further alleviated. At the same time, as equipment companies continue to confirm revenue in hand orders and the revenue scale continues to expand. It is expected that the scale effect of 2022 will be further revealed, and the profitability of lithium battery equipment companies is expected to be further improved. Judging from industry data, domestic new energy vehicle sales have continued to maintain high growth since 2022. According to the China Association of Automobile Manufacturers, in July, the sales of new energy vehicles were 593,000, an increase of 1.2 times year-on-year, and the market share reached 24.5%. From January to July, the sales of new energy vehicles reached 3.194 million units, an increase of 1.2 times year-on-year.

This round of battery factory expansion cycle since 2020 can be divided into three stages: 1) The first stage is the expansion of production of leading battery factories represented by CATL from 2020 to the present, and the expansion of its orders for equipment companies is in 2020 and 2021; 2) The second stage is the expansion of production of new battery factories represented by Yiwei Lithium Energy, China Innovation Airlines, and Honeycomb from 2021 to the present, and the expansion of orders for equipment companies is in 2021 and 2022; 3) The expansion of production in the third stage will be the expansion of overseas production, vehicle manufacturers and new industry entrants starting in 2022, and the expansion of orders for equipment companies will be in 2022 and 2023. Since the beginning of this year, bidding for Baofeng Group 20 GWh, SKI China and Hungarian projects, Volkswagen 20 GWh and other products have been implemented one after another, and the logic of the third phase of expansion is gradually being verified. Recently, the bidding for CATL, Northvolt 15GWh, Honeycomb Energy 40-50 GWh, Guoxuan Hi-Tech 60 GWh, China Innovation Airlines and other bidding are expected to be implemented one after another. According to the expansion plan announced by the battery factory, domestic BYD , Yiwei Lithium Energy, overseas SKI, LG, and the United States are expected to launch bidding in the second half of the year. Looking at the whole year, the number of bidding in the second half of the year was significantly higher than that in the first half of the year, and the peak bidding season in the third quarter arrived. With the arrival of the bidding peak season, the implementation of orders is expected to catalyze the recovery of the valuation of the entire sector. In the medium and long term, overseas battery factories such as LG, SKI, and Northvolt will expand production; Volkswagen and other vehicle manufacturers will deploy battery production to the upstream for supply chain security and bargaining with third-party battery factories; enterprises outside the industry, including Baofeng Group and Chuneng New Energy, etc., have deployed energy storage, and lithium battery equipment will have broad room for growth. At the same time, it is expected that the growth rate of industry personnel will slow down in 2022, and the problem of pre-expenses is expected to be alleviated. As equipment companies continue to recognize revenues in hand orders and the revenue scale continues to expand, it is expected that the scale effect of the whole year of 2022 is expected to further emerge, and the profitability of lithium battery equipment companies is expected to be further improved.

Semiconductor Equipment: Revenue has increased rapidly, profitability has been further improved

Semiconductor Equipment sector, we selected 9 companies as representatives for research. 2022H1 downstream wafer fabs and packaging and testing plants continue to expand production, and domestic substitution continues to advance among domestic wafer fabs and packaging and testing plants, and semiconductor equipment companies have achieved further growth in orders and operating income. Among them, Zhichun Technology's revenue declined in Q2 2022, mainly affected by the disturbances of the epidemic. In addition, other semiconductor equipment companies have achieved high revenue growth in 2022H1 or 2022Q2. The revenue growth rate of the entire industry reached 58.9% in 2022H1; the revenue growth rate of the entire industry reached 53.2%, slightly lower than the revenue growth rate in the first half of the year, mainly due to the impact of the epidemic in many places in China in the second quarter.

As the revenue scale of semiconductor equipment expands, the profitability of domestic semiconductor equipment companies has further improved. The overall gross profit margin of the industry in 2022H1 increased by 3.7 percentage points, 3.5 percentage points in 2022Q1, and 3.9 percentage points in 2022Q2.Among them, Huafeng Measurement and Control's new product 8300 entered the stage of increasing volume. Affected by the product structure, the gross profit margin slightly declined, but it still remained at a high level. Zhichun Technology continued to make efforts in the semiconductor process equipment field, achieving revenue of 466 million yuan in the first half of the year, a year-on-year increase of 73.09%, and gross profit margin increased by 11.21 percentage points to 35.11%. Shengmei Shanghai benefited from the increase in shipments of advanced technology products with high gross interest rates; Zhongwei Company benefited from the expansion of revenue share of etching equipment business with high gross profit margin and its own profitability, and Northern Huachuang benefited from the high growth of semiconductor equipment and electronic components businesses with high gross profit margin, and both gross profit margins increased significantly year-on-year.

2022H1 The net profit attributable to shareholders of all companies in the sector has crossed the break-even point as revenue expands, and all companies have achieved profitability. Among them, Zhichun Technology has suffered from the impact of epidemic control and the net profit attributable to shareholders of 2022H1 declined. In 2022Q2 alone, Tuojing Technology turned losses into profits, and the rest of the companies also achieved profits. After

excluding subsidies and other effects, the net profit attributable to shareholders of all companies in the 2022H1 sector was positive, and the net profit attributable to shareholders of the 2022 company's non-operating and shareholders of the 2022 company achieved a significant year-on-year growth (Tuojing Technology turned losses into profits), with the industry growth rate exceeding 260%. As domestic semiconductor equipment expands in scale, its own hematopoietic ability is constantly increasing, and its profitability is significantly improved.

According to industry data, North America's semiconductor equipment sales in Q1 2022 was approximately US$2.62 billion, a year-on-year increase of 95.5%. The semiconductor equipment sales in a single quarter were at a historical high in the past decade, and have achieved positive year-on-year growth for four consecutive quarters. In July 2022, Japan's semiconductor manufacturing equipment shipments were approximately US$2.345 billion, a year-on-year increase of 31.80%. According to SEMI's latest quarterly World Fab Forecast forecast in June 2022, global front-end fab equipment spending is expected to grow 20% year-on-year to a record high of US$109 billion, an increase of US$2 billion in front-end fab equipment spending compared with the March forecast (US$107 billion).

From the perspective of semiconductor market demand, global and Chinese semiconductor demand has entered a downward stage. In June 2022, global semiconductor sales were US$50.82 billion, a year-on-year increase of 13.3%, a month-on-month decline of 1.9%; in June, China's semiconductor sales were US$16.54 billion, a year-on-year increase of 4.7%, a month-on-month decline of 2.8%.

The demand for the semiconductor industry has gradually entered a downward turning point, but due to the rigidity of the capital expenditure of the wafer factory, the willingness of the wafer factory to adopt domestic equipment has been greatly strengthened, and the share of domestic equipment has been significantly increased. In the first half of the year, the orders of domestic semiconductor equipment companies exceeded expectations. At present, domestic semiconductor equipment companies are still in the expansion stage. With the gradual release of production capacity, the share of domestic equipment is expected to further increase, and this year it will continue to usher in a double-click on orders and revenue. It is expected that the prosperity of the conductor industry will usher in a reversal in the next half of the year, and demand on the equipment side is expected to increase further.

Construction Machinery: The downward trend in the industry and the epidemic have caused pressure on operations. International and diversified layout helps smooth the cycle

is restricted by the downward trend in industry demand and the price increase of raw materials. After the second half of last year, the revenue and profitability of the construction machinery sector continued to decline, and its performance was poor. The performance of the sector is closely related to the industry's prosperity. According to data from the industry association, the sales of the 22H1 excavators, car cranes, and crawler cranes in the 22H1 industry decreased by 36%/64%/34% year-on-year respectively, mainly due to the high base and the impact of construction. Here, we selected 12 companies represented by Sany Heavy Industry, XCMG Machinery, Liugong, Zoomlion Heavy Industry, Hengli Hydraulics, etc. in the construction machinery industry as samples for analysis (Note: All the following analysis excluded *ST Helen from some of the construction machinery samples reviewed). Overall, the construction machinery industry has entered a downward phase of the cycle. At the same time, due to factors such as the epidemic in the first half of the year, the recovery of the growth rate of infrastructure and real estate investment was lower than expected. Coupled with the impact of high base, the construction machinery sector in 22Q2 decreased significantly year-on-year, and a slight decline from the previous month. The 22Q2 and 22H1 sectors achieved revenue of RMB 65.23 billion/131.498 billion, respectively, which was -38.28%/-35.22% year-on-year; net profit attributable to shareholders was RMB 4.054 billion/9.308 billion, respectively, which was -63.21%/-59.19% year-on-year.The continued decline in performance, on the one hand, is due to the continued sluggish industry prosperity, and the sales of excavators, car cranes, concrete machinery and other products have dropped significantly. At the same time, price wars, raw material prices continue to be at high levels and scale economies should weaken, resulting in a major impact on the overall gross profit margin of the sector companies, resulting in a greater decline in profits than revenue.

raw material prices have fallen, and the gross profit margin of the sector has risen slightly month-on-month. In 22Q2, the price of raw materials fell, and the gross profit margin of the engineering machinery sector rose slightly month-on-month, while the gross profit margin of the 22Q2 and 22H1 sectors was 20.71%/20.09%, respectively, down 1.44pct and 3.24pct respectively year-on-year. As of the end of June, commodity prices have basically fallen to near the same period in 2021. As the inventory is gradually cleared out in the early stage, the existing inventory costs have decreased, and the gross profit margin in the second half of the year still has room for restoration. However, due to poor performance in industry demand and weakening of scale effects, the overall period expense ratio of sector companies is under pressure. During the downward period of the industry, the host company's increase in rebates for dealers and other support measures have led to an increase in overall sales expenses. At the same time, leading companies in the engineering machinery sector have increased R&D investment to achieve digital and intelligent upgrades, and the overall R&D expenses have also increased significantly, resulting in a continuous decline in the sector's net profit margin.

The industry is in a downturn, and the operating cash flow performance is weak. Accounts receivable in the 2022H1 sector was RMB 116.38 billion, a slight increase from the end of 2021, but revenue in the first half of the year fell sharply year-on-year, and the number of days of accounts receivable turnover increased significantly. The industry cycle has been downward and the impact of the epidemic and other factors has affected downstream construction progress, and the speed of collection of leading enterprises has slowed down significantly. At the same time, judging from the operating cash flow situation, after the second half of 2021, with the decline in the construction machinery industry and the need for stocking, the operating cash flow of the sector is relatively weak.

The internationalization process continues to advance, and leading enterprises have performed well in high export growth. According to data from the industry association, the cumulative export of excavators was 51,970 from January to June, an increase of 72.2% year-on-year, and the export share continued to increase. Excavator exports accounted for 46.9% of the total excavator sales in June, an increase of 6.0pct month-on-month and 20.3pct year-on-year. In recent years, the global competitiveness of domestic leaders has continued to increase, and has focused on expanding overseas after the domestic cycle declines. The demand for overseas markets is relatively good. According to Komatsu data, since the second half of last year, excavator start-up hours in North America, Indonesia and other places have maintained a positive growth trend overall. The number of startup hours in European markets fluctuates up and down near the flatness, and the high growth in exports helps domestic leaders to smooth the cycle.

High base and the reasons for the epidemic have caused short-term equipment sales and operating rates in the construction machinery industry. Under the tone of stable growth of the macro economy, it is expected that the implementation of relevant policies in the second half of the year is expected to accelerate. In addition, the project has rushed to work after the resumption of work in the epidemic, and under the background of low base, it may enter the phased demand recovery range. At the same time, digitalization, electrification and internationalization continue to promote, which is expected to enhance the domestic leaders' anti-cyclical fluctuation capabilities.

(This article is for reference only and does not represent any of our investment advice. If you need to use relevant information, please refer to the original text of the report.)

selected report source: [Future Think Tank]. system error