1. Mechanical sector continues to outperform the market in April
In April, the Shanghai Composite Index rose 4.40%, and the SW Machinery and Equipment Index rose 5.26%. After we adjusted the mechanical sector to increase the rating at the end of February, the machinery sector continued to outperform the broader market in April.

2. The machinery industry is operating well
In the first quarter, the added value of China's machinery industry above designated size increased by 6.5% year-on-year, which was higher than the average growth rate of industrial enterprises, with an increase of 10.1% in March; the import and export of electromechanical products in March decreased year-on-year; the first quarter operating income of listed companies in the machinery industry The net profit attributable to owners of the parent company still fell year-on-year, but the net profit narrowed down year-on-year, and the chain ratio rose. This shows that the machinery industry has shown signs of stabilizing.

3. Forward-looking indicators
The PMI index reached 53.5% in April and recovered for five consecutive months. The machinery sub-industry's PMI index still ranks in the forefront of manufacturing. In the first quarter, the total fixed asset investment in urban areas increased by 28.6% year-on-year, 2.7 percentage points higher than the same period of last year, and is expected to be fixed in the second quarter. Asset investment will still maintain a high growth rate of around 28%, which will have a positive effect on the production of machinery industry.

4. Analysis of major sub-sectors
Although some of the current data show signs of recovery, the situation faced by the machine tool industry is still severe, and the recovery and stabilization of the industry lags behind. We currently maintain its “neutral” rating.
The orders for new ships in the shipbuilding industry are gloomy. Most of the orders for domestic shipyards are ordered by foreign customers. In the global economic crisis, the risk of withdrawals and delays in delivery is still large. We maintain the “neutral” rating for shipbuilding industry.

5. May investment strategy
At present, the machinery industry has shown signs of stabilization and recovery, and local sub-sectors and product production and sales have improved. Overall, they are among the top manufacturers. It is expected that the industry will continue its good trend in May and maintain the “overweight” rating of the machinery industry. In May, we believe that production and sales, as well as related listed companies in the transmission and transformation equipment and construction machinery sub-sectors where profitability has bottomed out and the downstream demand is relatively strong continue to be the focus of attention.

6. Risk
The uncertainty of China's macroeconomic recovery; the price of raw materials (mainly steel) has rebounded sharply, which has reduced the profitability of the industry.

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