Investment growth will rebound and machinery industry is expected to grow rationally (1)

Viewpoint: It is expected that the growth rate of investment in the machinery industry will rebound in the first half of 2007, and the sales and profit levels of special equipment such as construction and construction machinery and mining equipment are all in a rare good condition in recent years. Regulation and control will make the industry's economy continue to grow in a rational manner. .
The catalogue of imported goods not subject to tax exemption for domestic investment projects has been revised again to provide a relatively fair competitive environment for domestic equipment manufacturing companies to carry out independent innovation. The leading enterprises producing high-end products benefit the most. CNC machine tools, forgings and dies were awarded "VAT returns after first signing." In the future, the specific policies for the merger of domestic and foreign-funded enterprises, large aircrafts, and CNC machine tools are worth looking forward to.
In 2007, non-operational capital operation will bring significant investment opportunities to the industry. The backdoor listing of the group is just the beginning of assets injection.
Investment growth will rebound in the first half of the year
Since the second half of 2006, the growth rate of investment in the machinery industry has been declining. The increase in value-added of enterprises has also been quite obvious. Is this the beginning of the trend or is it preparing to rebound in the first half of 2007?
From the perspective of new investment, the deceleration trend at the end of 2006 is quite obvious. By the end of the year, it has been close to the lowest point in the past three years; equipment investment has been lower than the overall investment growth rate in 2006, and the growth rate in the second half has been rising. Basically, it was not affected by regulation, indicating that the internal driving force of equipment procurement is still in place; and from the number of new construction and construction projects at the end of 2006, although the increment has decreased relative to 2005, the value is still at a very high level. Therefore, it is reasonable to expect that the investment growth rate will rebound in the first half of 2007.
Various sub-sectors are expected to grow steadily
Since the construction machinery and mining machinery that we are focusing on are all special equipment, the growth of the construction machinery will have an overall grasp of the status of the entire machinery industry. From the data as of the end of December 2006, the special equipment industry continued its high growth trend since 2005, which increased by 1 percentage point year-on-year. The entire industry's sales and profit levels are in a rare good condition in recent years. However, from the monthly growth rate of sales growth, the regulation in the second half of 2006 has had some impact on the industry. Fortunately, the growth rate of the industry's profits did not fall as rapidly as in the second quarter of 2004. It is estimated that the regulation will continue the rational growth of the machinery industry in 2007.
In the months after 2006, the sales growth rate of ship fittings, mining equipment, forgings and powder metallurgy products, construction machinery, railway rolling stock and accessories, metal vessels, printing equipment, and metal cutting machine tools are all at a A higher level; among which, profit growth of construction and construction machinery, metal ships, metal cutting machine tools, and printing equipment is much higher than sales growth, and profitability of the industry has been greatly improved; aircraft manufacturing and repair industry and textile special equipment are two industries. Although the growth rate of sales is not high, the profit growth rate has surpassed that of the industry. It is estimated that the profitability of the dominant enterprises in the industry will increase greatly.
From a production point of view, lifting equipment, forklift trucks, CNC machine tools, and powder metallurgy production maintained a trend of increasing momentum in previous years, and were not affected by the adjustments in the second half of 2006. In particular, CNC machine tools and powder metallurgy products grew rapidly in the last months. It is expected that this momentum will be maintained until the first half of 2007. The three sub-sectors of construction and construction machinery were not affected by the regulation in the months after 2006. The shovel and concrete machinery still maintained the annual average growth rate. The growth of compacted machinery gradually bottomed out in the third quarter and then rebounded. The monthly growth rate is above 25%, and the sub-industry shows signs of recovery. According to industry practice, the first two quarters are peak sales seasons. Considering the limited impact of last year's regulation, at least we can expect steady growth in the first half of 2007.
Invigorating policy
Domestic investment projects are not subject to tax-free imports of goods again revised. This revision is another comprehensive revision since 2000. The main contents of the revision include: 192 new catalogues, mainly equipments that have already possessed manufacturing capability and technical level can meet the requirements, such as general machinery, metallurgy, mining machinery, food, packaging, environmental protection, instrumentation and electronics. Some market capacity is relatively large, and it is possible for China to form equipment with manufacturing capabilities in the short term. The revised 207 articles are mainly aimed at improving technical specifications and equipment names, and are easy to implement by enterprises and customs. In addition, the technical specifications of the individual items in the original catalogue are high, and this time it has also been downgraded realistically.
This policy adjustment is an important measure to implement the “Several Opinions of the State Council on Accelerating the Revitalization of the Equipment Manufacturing Industry”. Although it has little impact on the short-term profitability of the company, it will provide a relatively fair competition for domestic equipment manufacturing companies to carry out independent innovation. The environment is very beneficial to long-term development. Compared with the last revision, due to the improvement of the specifications of many non-tax-exempt equipment, the leading enterprises that produce high-end products benefit the most.
VAT first return policy. On December 5, 2006, the Ministry of Finance and the State Administration of Taxation issued the “Value Added Tax Return Policy” on the CNC machine tools, forgings, and tooling industries respectively. The policy is for the products listed in the appendix of each notification from 2006 to 2008. The respective proportions of VAT reimbursement have made new regulations and it is expected that the profits of related companies will be affected for three years from 2007.
The range of CNC machine tools that enjoy the policy includes CNC machine tools, numerical control systems, and functional components. Forging products that enjoy policies are metal parts produced using forging processes. Forgings are divided into large and medium free forgings, die forgings, extrusions, and rings. Powder metallurgy parts and head forming parts; mold products enjoying the policy include molds, mold standard parts, and die clamp integrated inspection tools.
Follow-up policy is worth the wait. Consolidation of income tax of domestic and foreign-funded enterprises: The Standing Committee of the National People's Congress first reviewed the draft of the merger of domestic and foreign-funded corporate income tax mergers on December 24, 2006. The new tax law sets the statutory tax rate at about 25%, and the transition period for foreign-funded enterprises is set at 3 to 5 years. The tax preference will be shifted to industrial preferences, supplemented by regional preferences. This will reduce the overall actual tax burden of domestic-funded enterprises and increase the overall tax burden of foreign-funded enterprises. Taking into account the background of the revitalization of the equipment manufacturing industry, the machinery industry is in line with the future income tax preferences. If the tax is adjusted to 25%, the performance improvement will be above 10%.

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