Key investment points
Q & A 1: is there a risk in the demand for infrastructure orders? Relevant plans are released and individual stock orders are sufficient. The “14th five year plan” transportation and water conservancy plans are implemented. There is sufficient demand for the construction of large scenic base, and there is no danger of the end material of the project in 22 years. 1) Transportation: the construction demand of the 14th five year plan may exceed 100 billion, the volume is high, and the growth rate is slower than that of the 13th five year plan. The growth rate of urban rail and high-speed rail construction is expected to continue to lead; 2) Water conservancy: the volume of water conservancy investment in the 14th five year plan is expected to remain high; 3) Electric power: the “double carbon” strategy is superimposed on the supply guarantee work, and the commencement and construction pace of new energy infrastructure projects represented by Fengguang large base and UHV are expected to accelerate.
Industry: the newly signed growth indicators of major head construction central enterprises are usually 1-2 quarters ahead of the growth rate of infrastructure fixed investment, and the growth rate of net profit attributable to the parent is basically synchronous. 1) Since 2018, the orders of the construction industry have been concentrated to the head central enterprises again. By the end of 21q3, the CR8 index of newly signed orders / revenue of the eight central construction enterprises had reached 38.1 / 22.6 respectively, an increase of 6.9 / 5.0 respectively compared with the end of 2018; 2) Under the background of steady growth, the orders of central construction enterprises have “sufficient grain reserves”. In 2021, the total amount of new contracts signed by the seven central construction enterprises was 11.78 trillion yuan, with a cumulative year-on-year increase of + 8.3%, maintaining a high and rapid growth. “Build a solid foundation” for the growth of 22 years’ revenue and return to parent net profit.
Individual stocks: new energy infrastructure central enterprises signed new contracts in 21 years, with a year-on-year increase. The newly signed contracts of China Energy Engineering Corporation Limited(601868) and Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) in 2021 reached 800.9/780.3 billion yuan respectively, yoy + 44% / 16%; According to the orders of subdivided sectors, China Energy Engineering Corporation Limited(601868) the newly signed new energy infrastructure contract amount in 21 years was 192.8 billion yuan, a year-on-year increase of 52%.
Q & A 2: is the supporting funds for infrastructure investment sufficient? Cross cycle regulation and sufficient financial bullets
Source of funds: funds in the budget: Chinese loans: self raised = 1:1:3.5. General public budget expenditure, self raised local special bonds and government funds in the budget are mainly used as project capital to leverage investment. General public budget expenditure: there are enough bullets. The growth rate of public budget revenue and expenditure in the past 21 years is now a scissors gap, with over revenue and expenditure savings of nearly 900 billion. The excess income of 488.9 billion yuan will be used to supplement the 22-year budget stability adjustment fund. In terms of investment, about 24% of the general public budget expenditure in 21 years was invested in infrastructure.
Special bonds: issued after 21 years, the 22-year quota is issued in advance, and the available quota of 22h1 is sufficient. In terms of volume, 21q4 added 1.2 trillion yuan of special debt, and issued a 22-year special debt limit of 1.46 trillion yuan in advance; In terms of rhythm, the newly added special bonds exceeded 480 billion yuan in January 22, and the amount issued in advance is expected to be fully issued in 22q1; In terms of investment direction, more than half of the special debt amount in 21 years was invested in infrastructure projects, and the proportion of 21q4 infrastructure investment increased significantly. Government funds: there are enough bullets. It is suggested to pay attention to the impact of marginal changes in policies and funds of the real estate industry in 22 years on the income of government funds in 22 years. In the past 21 years, government funds had over 2 trillion yuan in excess income and expenditure savings, and the balance carried forward provided ammunition for 22 years of infrastructure investment. About 45% of the expenditure of local government funds is invested in urban and rural infrastructure; In December of the year, the real estate investment decreased year-on-year by – 13.9% in the same month, and decreased year-on-year for the fourth consecutive month, corresponding to the year-on-year land purchase fee of – 2.1%.
Q & a 3: is there a policy implementation risk for steady growth? Deja vu, 22 years mainly rely on infrastructure
Resumption of implementation effect: the central government has proposed “steady growth” all the time, and the fixed investment in infrastructure construction in the next year has been launched as scheduled. Despite differences in the role of infrastructure in the past “steady growth”, the growth rate of fixed investment in infrastructure has increased. In December 2011 and December 2014, we set the tone of “steady growth” and made efforts to build infrastructure to mainly hedge the decline of real estate investment; December 2008
In December 2018, the foreign trade department launched a downward channel, and both infrastructure and real estate made efforts to boost / stabilize investment growth and ensure stable economic development.
22 year policy: 22 years or different from the past – low consumption, high export growth or difficult to continue, short-term weakening and stable growth of real estate may be driven by infrastructure. Steady growth has a clear grasp, and policies have been transmitted from the central government to the local government. (1) Central: in the past 22 years, the macro-economy has faced triple pressure and is at the threshold of climbing over the ridge; (2) Main ministries and commissions: at present, the key goal is stability, and the policy requirement is strength. The central bank made it clear that the current economy is facing triple pressure, “stability” itself is the biggest “advance”; The national development and Reform Commission said that 22q1 should appropriately move forward the starting point of the policy, make early arrangements, start early and achieve early results, accelerate the promotion of 102 major engineering projects in the 14th five year plan, implement 21q4 special bonds to specific projects as soon as possible, pay close attention to the issued quota, and strive to form more physical workload in 22q1. The three stable growth direction policies of traditional transportation infrastructure, water conservancy construction and affordable housing have become clear. (3) Local: the growth target of fixed investment in all provinces in the past 22 years has increased steadily, and water conservancy, two new and one heavy industries, 5g and high-speed railway have become popular investment targets. 21 provinces released the target growth rate of fixed investment in 22 years, with an average of 8.1%, up 1.1pct from the actual growth rate of 7.0% in 21 years.
Q4: what is the current valuation quantile and what is the callback risk? Small repair at the bottom, or just started
Valuation quantile: since the convening of the national Standing Committee on December 10, 2001, the valuation of the construction industry has been repaired, but it is still at the bottom. As of the closing on February 8, the pe-ttm and Pb valuation of the construction industry were 11.1 times and 1.02 times respectively, 17% and 10% higher than the closing value on December 10, 2001. The current PE valuation and Pb valuation are at the quantile of 13% and 8% respectively since the beginning of 2012, at the bottom of the historical valuation in the past 10 years.
Risk judgment: the current building valuation repair or just started. In the first four “steady growth” markets, the construction industry index continued to rise for 4-8 months. The construction industry ran out of the absolute return market and the excess return in some years was significant. (1) Traditional construction central enterprises – China Railway Construction Corporation Limited(601186) , China Railway Group Limited(601390) , China Communications Construction Company Limited(601800) , Metallurgical Corporation Of China Ltd(601618) : the current PE valuation is at the historical bottom (PE valuation quantile 3% ~ 11%), and the safety margin is sufficient; (2) New energy infrastructure central enterprises – China Energy Engineering Corporation Limited(601868) , Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) : considering the compound annual growth rate of about 15% in the next three years, the current position is cheap enough (PE of the two in 22 years is 12.2 times and 13.8 times respectively).
Investment suggestions: (1) strategy: we reiterate the view put forward in the report “investment strategy of construction industry in 2022: capital construction force is preferred for new energy construction, and fabricated high growth is optimistic about steel structure” issued on November 24, 2021: two main lines are preferred for investment in construction industry in 22 years – capital construction force is preferred for new energy infrastructure, and fabricated buildings are preferred for steel structure, Pay attention to the central enterprises of traditional architecture. (2) Target: recommend new energy infrastructure leaders China Energy Engineering Corporation Limited(601868) , traditional infrastructure leaders China Railway Construction Corporation Limited(601186) , Metallurgical Corporation Of China Ltd(601618) , steel structure leaders Anhui Honglu Steel Construction(Group) Co.Ltd(002541) , Changjiang & Jinggong Steel Building(Group)Co.Ltd(600496) ; Follow Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) , China Railway Group Limited(601390) , China Communications Construction Company Limited(601800) .
Risk tips
The strength of steady growth policy is less than expected; The growth rate of infrastructure investment is lower than expected; The pace of promoting new energy infrastructure was lower than expected.
