Construction Equipment Industry, China Market Sales Share Likely to Determine Q2 Performance Outcomes

[Asia Economy Reporter Ki-min Lee] As China has recently been actively investing in infrastructure, excavator sales have exceeded the usual levels. Because of this, there is a view that the performance of domestic construction machinery companies in the second quarter of this year depends on sales in the Chinese market.

According to the construction machinery industry on the 11th, the Chinese construction machinery market, which was hit hard by the novel coronavirus infection (COVID-19), has rapidly recovered due to various government-led infrastructure policies. Excavator sales in China recorded about 49,000 units in March this year, about 45,000 units in April, and about 31,700 units in May. This is a 60% increase compared to the same period last year.

The industry sees that sales increased further as it coincided with the peak season of the Chinese excavator market, which is usually from March to April. Since infrastructure investment in China is ongoing, this trend is expected to continue in the second half of the year. For this reason, the industry views that the proportion of sales in China will be an important factor in defending the second-quarter performance of domestic construction machinery companies.

▲Excavator made by Hyundai Construction Equipment

First, China's infrastructure investment is expected to be a relative boon to Doosan Infracore, whose sales proportion in China reached 40% last year. According to Doosan Infracore and the China Construction Machinery Association (CCMA), Doosan Infracore recorded a cumulative excavator sales volume of 9,408 units from January to May this year, increasing by about 10% compared to last year despite the COVID-19 slump. In particular, the number of excavators sold by Doosan Infracore in China during May alone increased by 99% year-on-year to a total of 2,066 units. The Chinese market is compensating for the performance decline occurring in other markets. Daishin Securities estimated Doosan Infracore's second-quarter sales and operating profit at 1.039 trillion KRW and 125 billion KRW, respectively. Compared to last year's second-quarter sales of 1.018 trillion KRW and operating profit of 140 billion KRW, sales slightly increased while operating profit slightly decreased.

On the other hand, Hyundai Construction Equipment's second-quarter performance is expected to be relatively poor. Hyundai Construction Equipment's sales proportion in China was about 25% last year, and sales in emerging markets such as India, Russia, and Brazil accounted for about 35%. Hyundai Construction Equipment's market share in China slightly decreased from 3.4% in January this year to 3.1%, and emerging markets have not yet recovered from the impact of COVID-19. Because of this, the industry expects Hyundai Construction Equipment's performance, which recorded sales of 840 billion KRW and operating profit of 50 billion KRW in the second quarter of last year, to decrease by about 20% in the same period this year.