On February 6, Securities Daily published two articles, "LiuGong's 'Rebirth': How Can a Long-Established State-Owned Enterprise 'Mix' Out Vitality and 'Reform' Out Momentum?" and "Three Insights from LiuGong's Mixed-Ownership Reform Practice" (see the second article), providing an in-depth analysis of how this long-established construction machinery manufacturer is setting sail on a new voyage of high-quality development on the wings of reform.

LiuGong's 'Rebirth': How Can a Long-Established State-Owned Enterprise 'Mix' Out Vitality and 'Reform' Out Momentum?

Liuzhou, Guangxi, is located in the heart of central Guangxi, with beautiful natural scenery and a profound industrial heritage. It entered machinery manufacturing in the early 20th century and, after a century of development, has formed an industrial system underpinned by automobiles, steel, and machinery. Guangxi LiuGong Machinery Co., Ltd. (hereinafter referred to as "LiuGong") grew up amid these picturesque landscapes and clear waters.

The 'Smart Rebirth' of 67-Year-Old LiuGong

LiuGong's story began 67 years ago. In 1958, the Shanghai East China Steel Construction Plant was relocated to Liuzhou, and more than 500 entrepreneurs traveled from Shanghai and other places to Liuzhou. Overcoming harsh natural conditions and material shortages, they set up a new factory in February of the following year. The new factory was named "Liuzhou Construction Machinery Manufacturing Plant," which was LiuGong's predecessor.

Thereafter, from the successful development of its first 80-horsepower crawler bulldozer in 1960, to China's first wheel loader Z435 in 1966, and then to China's first articulated wheel loader in 1971, LiuGong gradually moved from a difficult startup onto the track of development. In 1993, LiuGong was successfully listed on the Shenzhen Stock Exchange, becoming the first listed company in China's construction machinery industry.

Today's LiuGong has undergone earth-shaking changes compared with the traditional construction machinery manufacturer of those years. Stepping into LiuGong's smart excavator factory, a modern industrial picture unfolded before the reporter's eyes. Workers and machines cooperate seamlessly, and two production lines operate efficiently, presenting a busy yet orderly production scene. The scenes of forklifts shuttling back and forth and the clamor of horns in traditional factories are gone, replaced by a highly integrated and precisely operating smart logistics system. Various excavator components are methodically and accurately delivered to each production stage through overhead suspension rails and ground intelligent transport lines, realizing a comprehensive, three-dimensional, and efficient logistics distribution network.

In LiuGong's smart loader factory, a short piece of music can be heard on average every five minutes, meaning another loader has successfully rolled off the line. In this highly intelligent factory, each production stage performs its own duties while cooperating closely, jointly performing a "production symphony" of efficiency, precision, and excellent quality. A person in charge of the smart loader factory told a Securities Daily reporter: "To achieve the goals of precision, low consumption, high efficiency, reduced emissions, and unmanned operations in the production process, the factory has optimized and upgraded key stages such as material cutting, welding, machining, painting, and logistics, as well as assembly and other areas."

Driven strongly by the "smart brain," both of LiuGong's factories have achieved qualitative improvements in all respects. Through the transformation and upgrading of intelligent manufacturing, the smart assembly factory has reduced labor costs by 20%, lowered the external feedback rate on complete-machine quality by 71%, and shortened order delivery time by 48%.

Mixed-Ownership Reform Stimulates Endogenous Momentum

Behind these tremendous changes is LiuGong's people, who have always adapted to the times, forged ahead with determination, and never stopped the pace of reform.

Huang Hualin, secretary of the board of directors of LiuGong, told a Securities Daily reporter that after 2005, as the company expanded, it once fell into operational difficulties, and management also realized that the company's development faced a series of problems, such as insufficiently market-oriented incentive mechanisms, a product structure in need of optimization, obvious business cyclicality, and lengthy decision-making processes.

LiuGong's predicament at the time was not an isolated case. To solve the problem of how long-established state-owned enterprises could further adapt to market development, mixed-ownership reform (hereinafter referred to as "mixed reform") emerged in response to the times. Thereafter, under the vigorous promotion of the State-owned Assets Supervision and Administration Commission of the Guangxi Zhuang Autonomous Region, LiuGong's mixed reform was put on the agenda and became an important watershed in the company's development history.

In 2018, LiuGong officially launched its mixed reform and, in November 2019, integrated the main-business assets of six subsidiaries to establish the mixed-reform entity—Guangxi LiuGong Group Machinery Co., Ltd. (hereinafter referred to as "LiuGong Limited")—laying the foundation for subsequent deepening of reform.

In 2022, LiuGong absorbed and merged LiuGong Limited and the company shares it held, mainly in Liuzhou OVM Machinery Co., Ltd., integrating high-quality main-business assets and achieving overall listing.

"Mixing" is the beginning, and "reform" must keep pace. After introducing new strategic investors and mechanisms, how the company vigorously transforms itself is the key. To this end, Zeng Guang'an, chairman and CEO of LiuGong, focused on twelve aspects, including corporate governance, strategic layout, technological transformation, international business, cost reduction and efficiency improvement, brand building, and social responsibility, striving to solve the various problems that had constrained LiuGong's development in the past and ultimately achieving good results.

It is reported that in terms of corporate governance, thanks to the introduction of strategic investors and the establishment of an employee stock ownership platform, LiuGong's governance structure has changed from the previous one-dominant-shareholder mechanism to a multi-shareholder structure, making company decisions more market-oriented and greatly strengthening execution. In terms of strategic layout, the company promptly adjusted its strategic goals in light of industry conditions to "comprehensive internationalization, comprehensive intelligence, and comprehensive solutions," namely the "Three Comprehensive Strategy," and continues to advance them. In terms of technological innovation, the company actively invests in research and development, established a professional team in 2014 to develop electrified products, and released its first electric loader in 2019. In terms of international business, the company adheres to its internationalization strategy, takes "going global" as the core to build a second growth curve, continuously improves its global distribution network, continues to build aftermarket capabilities, and establishes a solid "channel, product, service" iron triangle.

Seizing the Initiative in Competition

As the mixed reform yields results, Huang Hualin said that LiuGong has now entered a new stage of "a state-owned enterprise platform, market-oriented mechanisms, and an internationalized pattern." On the one hand, relying on its past state-owned enterprise background, LiuGong's corporate governance is highly standardized and institutionalized; on the other hand, after introducing new strategic investors and operating mechanisms, the company is better adapted to market development and always maintains a competitive advantage in the fierce market. LiuGong machines, with their outstanding quality and excellent performance, sell well in every corner of the world, powerfully establishing the name of "LiuGong."

After drastic changes, LiuGong's operating performance has achieved significant improvement, showing strong development momentum. In terms of revenue, from 2016 to 2023, the company's revenue increased from 7.01 billion yuan to 27.52 billion yuan, with a compound annual growth rate (CAGR) of about 22%. LiuGong's recently disclosed 2024 performance forecast shows that the company expects net profit attributable to shareholders of the listed company in 2024 to be 1.258 billion yuan to 1.475 billion yuan, up 45% to 70% year on year; net profit after deducting non-recurring gains and losses is expected to be 1.066 billion yuan to 1.283 billion yuan, up 88% to 126% year on year.

In terms of product structure, LiuGong performs outstandingly in excavators and loaders. In the past two years, its domestic market share of excavators has risen to more than 14%. In loaders (including electric loaders), LiuGong firmly ranks first in market share. In addition, to break the traditional cyclical constraints of the machinery industry, LiuGong has also actively developed new businesses such as aerial work machinery, agricultural machinery, and industrial vehicles, building an increasingly diversified and rational product structure and transforming from a single-product leader into a comprehensive solutions provider.

With technological innovation and industrial upgrading in the construction machinery industry, the era of the "new five transformations"—electrification, digitalization, connectivity, unmanned operation, and sharing—is approaching. Construction machinery equipment must be more intelligent, efficient, and green to meet higher-standard construction needs. This also requires enterprises in the industry to strengthen R&D and innovation and launch more advanced technologies and products with independent intellectual property rights.

Huang Hualin further stated that after being reborn through mixed reform, fundamental changes have taken place in LiuGong's development core. Standing at a new starting point, LiuGong aims at the "Three Comprehensive Strategy" and, under the guidance of the "new five transformations," carries out a series of intelligent manufacturing projects. At the same time, it innovates institutional and mechanism reforms, promotes intelligent upgrading across LiuGong's entire value chain, and continuously builds new quality productive forces to enhance the depth and width of the company's "moat."