China Merchants Securities has released a research report indicating that China's machine tool industry is developing steadily, with demand from high-end manufacturing sectors such as new energy vehicles, AI hardware (liquid cooling, optical communications), and humanoid robots gradually increasing, structurally boosting the industry's profitability. The overall industry growth is relatively healthy, with no price-compromising sales behavior observed, and overall demand and supply are well matched. If industry order revenue continues to grow, net profit margins are also expected to gradually improve.
The growth in the cutting tool sector in 2026H1 was primarily driven by a significant rise in tungsten prices during the period, with the growth rate of net profit attributable to parent companies exceeding the revenue growth rate. Supply-side bargaining power has further strengthened, and overall industry demand remains robust.
Machine Tool Sector: Steady Revenue and Profit Growth with Improved Profitability
On the revenue and profit front, sample companies achieved combined revenue of RMB 11.595 billion in 2026H1, a year-on-year increase of 25.18%; combined net profit attributable to parent companies reached RMB 992 million, the highest semi-annual figure since 2022H1, with the growth rate hitting 33.72%. China Merchants Securities attributes the revenue growth in 2026H1 primarily to strong procurement demand from downstream sectors including general equipment, auto and motorcycle parts, consumer electronics, communications, and liquid cooling heat dissipation, leading to significant growth in sales orders and corresponding increases in operating revenue. Meanwhile, the steady development of China's machine tool industry, coupled with gradually rising demand from high-end manufacturing in new energy vehicles, AI hardware (liquid cooling, optical communications), and humanoid robots, has structurally enhanced the industry's profitability.
In terms of profitability, the average gross margin of sample companies reached 26.68% in 2026H1, up 0.93 percentage points year-on-year, marking the highest level and improvement since 2022H1. The average net profit margin stood at 10.53% in 2026H1, up 0.22 percentage points from 10.31% in 2025H1, reflecting improved profitability. This suggests the industry's overall growth is relatively sound, with no price-cutting sales behavior, and demand and supply are broadly balanced. If order revenue continues to rise, net profit margins are likely to improve further.
On asset quality, total inventory of sample companies in 2026H1 amounted to RMB 10.858 billion, up 15.82% year-on-year, reaching a new high since 2022H1. The brokerage believes that the combination of high revenue growth and elevated inventory levels may indicate that sample companies hold an optimistic view of industry trends, prompting active stockpiling to meet future demand. Additionally, considering that inventory includes some "goods in transit," the current higher inventory levels may provide some support for confidence in performance in subsequent reporting periods.
Regarding contract liabilities, sample companies recorded RMB 2.985 billion in 2026H1, up 27.76% year-on-year, also reaching a new high in both amount and growth rate since 2022H1. Taken together with inventory levels, the machine tool sector is expected to demonstrate solid performance certainty, with a likely continuation of growth trends in the remaining quarters of 2026.
Cutting Tool Sector: Rapid Revenue and Profit Growth with Notable Increases in Inventory and Contract Liabilities
On the revenue and profit side, sample companies generated combined revenue of RMB 3.885 billion in 2026H1, a substantial year-on-year increase of 71.69%. Total revenue set a new semi-annual record since 2021, with a marked acceleration in growth. The brokerage attributes this growth primarily to the significant rise in tungsten prices in 2026H1, as tungsten is the main raw material for industrial tools, prompting companies to adjust prices and drive revenue growth. On the profit side, combined net profit attributable to parent companies reached RMB 1.174 billion in 2026H1, the highest semi-annual figure since 2021H1. The growth rate of net profit attributable to parent companies outpaced revenue growth, which can be attributed to the notable economies of scale in industrial tools, where higher capacity utilization leads to faster declines in marginal costs, as well as the rapid increase in tungsten prices in 2026, allowing sample companies to utilize some lower-cost inventory purchased before the price surge, thereby generating additional gains.
In terms of profitability, the average gross margin of sample companies reached 50.32% in 2026H1, up 21.99 percentage points year-on-year, setting a new record since 2021H1 and surpassing the previous peak. This indicates the industry has entered an upward cycle, with price-increase sales behavior emerging, a certain mismatch between demand and supply, and strong bargaining power on the supply side. The average net profit margin was 32.54% in 2026H1, up 23.65 percentage points from 8.89% in 2025H1, reflecting a significant improvement in profitability. However, if tungsten prices fluctuate in the future, the industry's net profit margins may be affected, with movements typically correlating with tungsten price trends. Therefore, monitoring tungsten price trends is essential for assessing the net profit margin outlook for the cutting tool sector.
On asset quality, total inventory of sample companies in 2026H1 reached RMB 4.191 billion, up 107.28% year-on-year, marking a new high since 2022H1. The substantial increase in inventory is firstly due to the rise in tungsten prices leading to revaluation of corresponding products, and secondly, companies strategically increased inventory reserves to hedge against raw material price volatility. Regarding contract liabilities, sample companies recorded RMB 84 million in 2026H1, up 185.72% year-on-year, also reaching a new high in both amount and growth rate since 2022H1. The notable growth in contract liabilities suggests an increase in prepayments for products, indicating that supply-side bargaining power in the cutting tool sector has strengthened further and overall industry demand remains strong.
Risk Warning: Downstream industrial production demand may fall short of expectations; significant volatility in raw material prices could impact downstream procurement.
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