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Citi has issued a research report noting that SANY HEAVY IND (06031), ZOOMLION (01157), and Hengli Hydraulic (601100.SH) saw share price adjustments ranging from approximately 3% to 7% this Wednesday (16th). The firm has set a target price of HK$29 for the H-shares of SANY HEAVY IND, a target price of RMB 26 for its A-shares (600031.SH), and a target price of HK$8.9 for ZOOMLION, all carrying a "Buy" rating. The report summarizes both management's perspectives and Citi's own analysis.

Management at ZOOMLION believes that the Chinese government is unlikely to cancel export tax rebates for construction machinery at this time. Their rationale is that China's construction equipment sector still lacks sufficient global competitiveness, especially in developed markets, and that any such policy changes would more likely begin with industries where China holds a dominant global position, such as new energy vehicles or batteries.

Meanwhile, Hengli Hydraulic contends that its premium market positioning in the United States might shield it from being a direct target of investigations. The company has prepared contingency plans, including exporting hydraulic cylinders to the U.S. via its facilities in Mexico and Indonesia. Management estimates that initial investigation results could be announced by the end of Q1 2027, by which time the Mexico and Indonesia plants are expected to cover nearly all cylinder demand from U.S. clients. The Mexico plant is projected to reach breakeven when annual cylinder output hits $120 million in 2027, albeit with gross margins potentially running 2 to 3 percentage points lower than the company's China average.

Both SANY HEAVY IND and ZOOMLION noted that their overseas revenues have continued to grow since the U.S. entered its rate-hiking cycle in 2023. They attribute this growth not to surging demand from any single market, but rather to increased market share gains, particularly across emerging nations.

All three companies—SANY HEAVY IND, ZOOMLION, and Hengli Hydraulic—expect that the pressure from foreign exchange losses in Q3 will be markedly lighter on a year-over-year basis. ZOOMLION stated that its exchange losses since the start of Q3 this year are below RMB 100 million, a significant improvement from the approximately RMB 200 million recorded during the same period last year. SANY HEAVY IND estimated its Q3 exchange losses at around RMB 400 million, compared with roughly RMB 300 million in the prior-year quarter. Hengli Hydraulic, which faced RMB 118 million in exchange losses in Q3 last year, indicated that this makes the year-over-year comparison much more favorable this time around.

Citi believes that following the recent pullback, the A-shares of SANY HEAVY IND (600031.SH) present an attractive valuation, trading at approximately 1.7 times the expected 2026 price-to-book ratio—only about 13% above its historical low of roughly 1.5 times. Meanwhile, ZOOMLION appears to be the most defensive pick given the cautious sentiment and elevated U.S. interest rates, supported by a cash dividend yield of approximately 8%.