Analysis of the Impact of China's Construction Machinery Business Model Changes on the Valuations of CAT, Sany Heavy Industry, and XCMG Machinery

This analysis is based on market data and industry discussions as of December 18, 2025 (UTC+8), focusing on the impact of business model changes in China’s construction machinery market on the valuations of relevant enterprises [0].

1. Core of Business Model Differences
   :
   • Caterpillar (CAT) adopts the TCO (Total Cost of Ownership) model, emphasizing high equipment durability, full-life-cycle services, and long-term value, with profits supported by financial products and after-sales businesses [0].
   • Sany Heavy Industry (06031) and XCMG Machinery (000425) adopt the IRR (Internal Rate of Return) model, focusing on quick payback and low-threshold financing, with short-term yield as the core competitive point [0].

2. Valuation and Financial Performance Comparison
   :
   According to market data [0], the key indicators of the three enterprises are as follows:

   Indicator	Caterpillar (CAT)	Sany Heavy Industry (06031)	XCMG Machinery (000425)
   Market Cap	272.85 billion USD	175.21 billion USD	127.40 billion USD
   P/E Ratio	29.46x	21.38x	18.86x
   P/B Ratio	13.21x	2.40x	2.09x
   ROE	48.20%	11.23%	11.03%

   • CAT’s high valuation multiples reflect the brand premium and sustained profitability brought by its TCO model.
   • The lower valuations and ROE of domestic manufacturers are consistent with the characteristics of the IRR model, which focuses on scale and short-term returns.

3. Market Performance Verification
   :
   • CAT’s Asia-Pacific revenue accounts for only 17.6% of total revenue [0], with weak performance in the Chinese market, partially attributed to business model differences.
   • Domestic manufacturers dominate the Chinese market with advantages such as low-threshold financing under the IRR model, but the long-term sustainability of this model is not yet clear.

1. Strong Correlation Between Valuation and Business Model
   : The long-term value proposition of the TCO model supports CAT’s premium valuation, while the short-term orientation of the IRR model leads to lower valuations for domestic manufacturers [0].
2. Structural Challenge of Chinese Market Preferences
   : Chinese customers’ preference for short-term yields makes the IRR model more competitive, directly affecting CAT’s market share and regional performance [0].
3. Potential Variable in Global Structure
   : If domestic manufacturers promote the IRR model globally, it may challenge CAT’s dominant position in the traditional TCO model, but they need to overcome differences in global market demand for long-term services.

• Risks
  :
  1. If CAT’s TCO model does not adapt to the financing preferences of the Chinese market, it may continue to face share pressure [0].
  2. Domestic manufacturers’ IRR model may face profit risks due to low profits and long-term quality costs.
• Opportunities
  :
  1. CAT can combine TCO advantages with local financing innovations to enhance competitiveness in the Chinese market.
  2. Domestic manufacturers can rely on the scale advantages of the IRR model to accelerate global expansion.
• Uncertainty
  : Whether the competition between TCO and IRR models will trigger a global industry reshuffle still needs more data verification (such as changes in global market share, long-term equipment maintenance costs, etc.) [0].

This analysis presents the direct impact of two core business models in China’s construction machinery market on enterprise valuations: CAT’s TCO model brings high valuations and global profit advantages, but its performance in the Chinese market is limited; domestic manufacturers’ IRR model drives share growth but has lower valuations and profitability. Currently, the impact of the competition between TCO and IRR models on the global industry structure is not yet clear, and further attention needs to be paid to changes in market preferences and enterprise strategic adjustments.