XCMG Machinery (000425.SZ) ROE Analysis Report

Now let me provide you with a detailed analysis report.

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Based on the latest financial data,

, ranking 2nd among 5 major enterprises in the construction machinery industry, which is higher than the industry average of 9.33%. [0]

Enterprise	ROE(2024)	Net Profit Margin	Asset-Liability Ratio	Equity Multiplier	Asset Turnover
XCMG Machinery	10.30%	6.53%	64.92%	2.85	0.55
Sany Heavy Industry	8.54%	7.83%	56.40%	2.29	0.48
Zoomlion	6.24%	8.81%	53.98%	2.17	0.33
LiuGong Machinery	7.93%	4.61%	32.00%	1.47	1.17
Shantui Construction Machinery	13.63%	7.75%	52.32%	2.10	0.84
Industry Average	9.33%	7.11%	51.92%	2.08	0.67

According to DuPont Analysis:

For XCMG Machinery:

• XCMG Machinery’s equity multiplier is as high as
  2.85
  , the highest in the industry
• This stems from its relatively high asset-liability ratio (
  64.92%
  ), which is significantly higher than that of Sany Heavy Industry (56.40%) and Zoomlion (53.98%)
• High financial leverage amplifies ROE, but also brings higher financial risks [1]

• XCMG Machinery’s net profit margin of
  6.53%
  is lower than the industry average of 7.11%
• There is a noticeable gap compared with Sany Heavy Industry (7.83%) and Zoomlion (8.81%)
• The main reasons include:
  • Relatively low gross profit margin
    (22.55% vs. Zoomlion’s 28.17%)
  • Room for improvement in expense ratio control
    (selling expense ratio 5.79%, financial expense ratio 2.11%) [1]

• XCMG Machinery’s asset turnover is
  0.55
  , ranking in the middle of the industry
• LiuGong achieves an ROE of 7.93% through low financial leverage (equity multiplier of 1.47) paired with high asset turnover (1.17)

Year	XCMG Machinery ROE	Industry Average	Difference
2020	8.2%	7.5%	+0.7%
2021	9.8%	8.5%	+1.3%
2022	7.5%	6.2%	+1.3%
2023	9.5%	7.0%	+2.5%
2024	10.3%	9.3%	+1.0%

Looking at historical data, XCMG Machinery’s ROE has been

for a long time, with the gap widening to 2.5 percentage points in 2023. [2]

Although XCMG Machinery’s ROE is higher than the industry average, to further narrow the gap with industry leaders (such as Shantui’s 13.63%), the following aspects need to be focused on:

• Product structure optimization
  : Increase the proportion of high-margin products (e.g., gross profit margin of overseas business is 25.38% vs. 20.19% for domestic business) [1]
• Cost reduction and efficiency improvement
  : The company achieved a net procurement cost reduction rate of 6.6% and a complete machine logistics cost reduction rate of 6.3% in 2024, and there is still room for improvement [1]
• Expense control
  : The financial expense ratio is greatly affected by exchange gains and losses (up 1.33 percentage points year-on-year in 2024)

• The current scale of accounts receivable is relatively large (approximately RMB 39.6 billion in 2024), which affects asset turnover efficiency
• Inventory management efficiency needs to be improved

• The asset-liability ratio of 64.92% is relatively high
• A balance needs to be struck between using financial leverage to boost ROE and controlling financial risks

According to research reports from Guosen Securities and Tianfeng Securities:

• XCMG Machinery’s ROE is expected to rise to
  12.9%
  in 2025
• It is expected to reach
  15.6%
  in 2026
• It is expected to further rise to
  17.7%
  in 2027 [1][3]

This improvement expectation is mainly based on:

• Continuous expansion of overseas business (overseas revenue accounted for 45.58% in 2024, up 6 percentage points year-on-year)
• Continuous optimization of product structure
• Continuous implementation of cost reduction and efficiency improvement measures

; its 2024 ROE of 10.30% ranks 2nd in the industry. Its ROE is primarily driven by , rather than through improving net profit margin or asset turnover. To achieve sustainable growth in ROE, the company needs to focus on improving profitability and operational efficiency while maintaining moderate financial leverage.

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Chart Description: The chart above shows the 2024 ROE comparison of construction machinery enterprises, comparison of the three elements of DuPont Analysis, XCMG Machinery’s ROE decomposition, and historical trend analysis.

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[0] Jinling API Financial Data - XCMG Machinery (000425.SZ) Company Overview and Financial Analysis

[1] Guosen Securities - XCMG Machinery (000425.SZ) Annual Report Review: Steady Profitability Improvement, Rapid Overseas Business Development (May 2025)

[2] Guohai Securities - Construction Machinery Industry 2023 Annual Report & 2024 Q1 Summary: Domestic Demand Bottoming Out + Accelerated Overseas Expansion

[3] Tianfeng Securities - In-Depth Research on XCMG Machinery (000425): Construction Machinery as a Steady Moon, Mining Machinery as a Rising Sun (December 2024)