Housing Rebound Lifts Construction Equipment Makers Back to Profitability

(Beijing) — China's leading construction-machinery makers reversed a recent downturn as a housing boom boosted their latest quarterly profits.

However, some cautioned the growth could quickly fizzle due to a slowing economy and recent government measures to cool the overheated property market.

Two of China's top three players in the industry, Zoomlion Heavy Industry Science and Technology Co. Ltd. and Sany Heavy Industry Co. Ltd., had reported large losses in recent quarters due to a sharp slowdown in new construction over the last two years. The third, XCMG Construction Machinery Co. Ltd., remained marginally profitable.

Before that, the trio had boomed over the last two decades thanks to a rapid buildup in commercial and residential properties under Beijing's market-oriented reforms. But that growth has slowed sharply in the past two years amid a slowing economy.

XCMG, the publicly listed arm of state-owned Xuzhou Construction Machinery Group Co. Ltd., reported a net profit of 38.4 million yuan ($5.7 million) from July to September, nearly four times what it was a year earlier. Its revenue increased by 11% to nearly 4 billion yuan.

A housing boom that saw home prices soar in major Chinese cities earlier this year increased demand for construction equipment such as cranes and bulldozers, an XCMG investment department employee told Caixin.

Rivals Zoomlion and Sany saw similar upswings in their profits and revenues. Zoomlion earned 34.2 million yuan in the third quarter, after losing 829 million yuan between January and June. Beijing-based Sany reported a similar shift, posting a profit of 36.63 million yuan in the latest quarter after a 345 million yuan loss in the same period of 2015.

After sagging over the last two years, China's real estate industry showed signs of recovery after housing prices rallied earlier this year, said Lü Ying, vice secretary of the China Construction Machinery Association. More than 5,400 excavators were sold in September, up 70% from the same period of last year, according to industry website 21-sun.com.

But both construction equipment companies and industry analysts are cautious about the rebound due to China's slowing economy and a series of government measures rolled out last month to cool the market. Since late September, more than 20 cities have rolled out home-purchase restrictions, and the central bank has ordered at least 17 commercial banks to rein in home loans.

The management team at XCMG believes that China's economy will experience an "L-shaped" growth curve, meaning growth will remain steady after the decline of recent years. More observation is required before the company can conclude if the recovery will be sustained or is short-lived, the employee said.

"It's hard to say whether the housing boom will last so it's still hard to predict the future of the construction equipment industry at this point," said Lü, adding that the current growth is high partly due to last year's sluggish figures.

Contact reporter Chen Na (nachen@caixin.com); editor Doug Young (dougyoung@caixin.com)