This week’s special topic: how about the increment of REITs’ asset revaluation of central enterprises?
Recently, policies related to public offering REITs of infrastructure have been intensively introduced. On January 29, the Ministry of Finance and the State Administration of Taxation jointly issued announcement No. 3 on the pilot tax policy of real estate investment trusts (REITs) in the field of infrastructure. The core contents of the new regulations mainly include three points: 1) in the restructuring stage, the asset reorganization carried out by the original equity for the issuance of REITs will not be subject to income tax; 2) In the issuance stage, the income tax of the original equity holder will be deferred until the actual income is obtained, including the locked share of the original equity holder; 3) In the operation stage, there is no tax preference. We believe that the first and second points are the most important taxes that affect the original equity holders to release assets, so the state has made concessions on tax sources. During the duration, due to the tax exemption of public fund dividends, the “stock + debt” tax shield at the project company level can reduce part of the tax burden, so the tax burden is relatively low, and the state has reserved the third point. At the same time, only income tax is mentioned in the document for the time being, and other taxes, such as value-added tax and land value-added tax, are not mentioned for the time being. The new regulations of the Ministry of Finance and the State Administration of taxation are mainly aimed at the pre establishment restructuring stage and the establishment stage. This is also the first step towards promoting the further development of REITs from the perspective of taxation. Previously, on January 28, the official website of the CSRC released the “legislative work plan of the CSRC for 2022”. Among them, there are five “projects that need to be studied and introduced at an appropriate time” this year, including the measures for real estate investment trust funds. Overall, the recent introduction and implementation of infrastructure REITs policy reflects the strong support of the state for public offering REITs.
The continued implementation of public equity REITs for infrastructure construction is conducive to the reconstruction of the valuation of the construction sector. With the continuous promotion of China’s public offering REITs policy, on the one hand, it reflects the continuous support of the policy for infrastructure, on the other hand, it may bring marginal increment to infrastructure funds in the medium and long term, and the logical level is expected to promote the valuation repair of infrastructure sector. In addition, if the REITs of infrastructure construction is promoted smoothly, the central infrastructure enterprises currently holding more operational infrastructure assets will add a new way to quickly return funds, which will further improve the asset turnover rate and reduce the debt ratio of central enterprises, and further straighten out the logic of medium and long-term roe improvement. We have combed in detail the comparison between franchise assets and market value of major construction listed companies, From the perspective of market value / net franchise assets, the ratio of China Communications Construction Company Limited(601800) to Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) is still less than 1, which deserves special attention.
Market Review
The week before the Spring Festival, the construction (CITIC) index fell 5.86%, the Shanghai and Shenzhen 300 index fell 4.94%, and all the three sub sectors fell. Among the individual stocks, Shandong Hi-Speed Road&Bridge Co.Ltd(000498) (+ 8.27%), Huitong group (+ 6.94%), Tianyu Eco-Environment Co.Ltd(603717) (+ 4.79%), China Haisum Engineering Co.Ltd(002116) (+ 4.63%) and Sinosteel Engineering & Technology Co.Ltd(000928) (+ 4.03%) were the top gainers, of which Shandong Hi-Speed Road&Bridge Co.Ltd(000498) was mainly related to the performance exceeding expectations.
Investment advice
Under the medium and long-term growth dimension of “construction +” leader, enterprises with “new energy” and “chemical” industries have gradually entered the performance cashing period, and their performance is expected to grow high. Under the dimension of valuation restoration of value varieties, the leaders of local state-owned enterprises are expected to enjoy the high boom of regional infrastructure. The profit elasticity brought by the improvement of operating efficiency has initially appeared. There are both opportunities for steady growth and report quality improvement in the medium and long term. The increase of market share of central enterprises supports the continuous growth of revenue. After the completion of leverage reduction, roe still has obvious upward elasticity, With the continuous strengthening of the profit release ability and willingness of central enterprises, they also have strong elasticity of valuation repair.
Risk tips: Infrastructure & real estate investment went down more than expected, new energy & chemical business expansion was less than expected, the concentration of assembled leaders was less than expected, and the progress of efficiency improvement in the reform of central enterprises and state-owned enterprises was less than expected.
