August 31, 2012 4:02 pm

Overseas sales boost Zoomlion and Sany

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Zomlion©Bloomberg

Zoomlion, China’s second-largest equipment maker by turnover, posted a stronger-than-expected first-half profit on the back of increased domestic market share and strong overseas sales.

Sales of heavy machinery have plummeted this year in China because of cooling activity in the construction sector, a trend that has affected Zoomlion rivals such as Sany Heavy, which reported a 13 per cent drop in net profit for the first half.

Underscoring the gloomy market, Japanese equipment maker Hitachi said on Friday that it was partially shutting down a factory in China because of poor demand. Hitachi will close the excavator factory for two weeks a month – the first time it has taken such a step since the factory was built in 1995.

China’s economic growth has slowed to 7.6 per cent in the second quarter of this year, its slowest pace since early 2009. The construction sector has been particularly hard hit, with new residential housing starts down 30 per cent year on year in July – a trend that has prompted a similar drop in overall sales of construction equipment.

Amid the downturn in the domestic market, Chinese equipment makers are reporting strong profit growth overseas, where they have invested and expanded aggressively, particularly in developing markets.

Sany Heavy, which purchased German concrete pumpmaker Putzmeister earlier this year, said its overseas sales had more than doubled in the first half of this year, reaching Rmb3.3bn ($519m). However, at home Sany has had a tougher time, cutting staff in certain departments this spring and reporting sales revenues growth of only 5 per cent for the first half of the year.

Zoomlion has had similarly explosive growth overseas, with sales up 27 per cent in the first half of this year, albeit from a low base. The company expects that exports of its machines will continue to increase in the second half of this year, whereas inside China, “the growth of the construction machinery industry will slow down”.

Analyst Alexious Lee of Fortune CLSA Securities in Shanghai said demand for machinery is likely to recover within six months or a year but overcapacity problems could persist. China has more than 50 excavator manufacturers but he believes that once the market matures it will have room for less than 10. “China still has to resolve the overcapacity issue – not just in the heavy machinery sector but in the whole economy,” Mr Lee said.

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