As one of the “counter cyclical adjustment tools”, the infrastructure industry is often an important starting point to deal with the downward pressure of the economy, and the infrastructure industry is currently playing such a role. At the same time, the stable performance and low valuation of infrastructure leaders have laid a foundation for subsequent valuation improvement.
Infrastructure sector is a rare sector with sustainable market in the near future, which may be related to multiple factors such as policy overweight, continuous increase of orders of leading enterprises, undervaluation, high dividend rate and so on. People from organic organizations told the reporter of red weekly that the theme investment opportunities of Daji construction are expected to run through the whole year.
policy underpinning
infrastructure boom is expected to pick up
Since December last year, the market has continued to adjust, but the infrastructure sector has opened a contrarian rise in risk aversion. According to wind data statistics, as of February 9 (the same below), Shenwan infrastructure sector (mainly including urban rail construction, road and bridge construction, water conservancy, railway, etc.) closed at 2598 points, a new high since May 2019, and an increase of 18.25% compared with 2197 points in early December last year. Further, the capital construction of some Chinese prefix central enterprises such as China Communications Construction Company Limited(601800) , Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) and local prefix enterprises such as Shandong Hi-Speed Road&Bridge Co.Ltd(000498) increased by more than 40%.
In fact, as a traditional industry, the performance of the infrastructure sector has lagged behind in recent years. According to the time cycle of nearly five years (February 2018 to February 2021), Shenwan Jijian sector increased by only 18%, far lower than emerging industries such as electrical equipment (new energy) and electronics, which increased by more than 70%.
The reason for this phenomenon may be related to the overall decline in investment growth. According to the data of the National Bureau of statistics, the completed amount of fixed asset investment of the whole society (nominal year-on-year) has continued to decline since the growth peak of 25.7% in 2009. The growth rate has continuously fallen below 10% since 2015 and further decreased to 2.70% in 2020. Therefore, the infrastructure industry is regarded as a “sunset industry”.
With regard to the unexpected performance of the infrastructure industry in the near future, the relevant person in charge of the Board Secretary Office of a listed infrastructure company told the reporter of red weekly, “From the first three quarters of last year, some special bonds did not meet expectations. After the central economic work conference in the fourth quarter of last year, the policy has gradually increased the regulation and control of infrastructure. For example, the issuance of special bonds in advance and the subsequent credit easing measures. At present, we are optimistic about this year.”
In the middle of December last year, the Ministry of Finance issued 1.46 trillion yuan of new special bonds in 2022 to all localities in advance. On January 29, real estate investment trusts (REITs) in the field of infrastructure were released on a pilot basis. On the whole, the policy of overweight and large infrastructure construction, “the policy force should be appropriately advanced” and “moderately ahead of schedule infrastructure investment” are expected to bring “dividend effect” to the industry.
Shi Yuqiang, chairman of Tonghe investment, who has long paid attention to the field of large infrastructure, said in an interview with the reporter of red weekly, “affected by the epidemic and other factors, it may be difficult to boost consumption in the short term. When there is still downward pressure on the overall economy, policy stimulus will turn more to the field of infrastructure, and the prosperity of large infrastructure is expected to usher in an upward turning point.”
“performance” is better
the contracted amount of state-owned leading infrastructure reached a new high
In fact, behind the policy overweight and the strength of the secondary market against the market, the infrastructure with Chinese prefix central enterprises and local head enterprises as the “main force” handed over a bright signing “report card” last year.
According to the reporter of red weekly, the signing amount of these “main” infrastructure enterprises increased by more than 10% and reached a record high. For example, China Railway Construction Corporation Limited(601186) , the total amount of new contracts signed last year reached 2816.6 billion yuan, a record high, with a year-on-year increase of 10.39%; Local leading enterprises Shanghai Construction Group Co.Ltd(600170) , with a total newly signed contract amount of 442.506 billion yuan last year, also hit a record high, with an increase of 14.41% (see Table 1).
Due to different project types, there are great differences in project construction cycle and payment collection progress. For example, some projects have a construction cycle of 1 ~ 2 years, while others may be as long as 3 ~ 5 years. As many projects adopt the payment mode according to the construction progress, this means that the orders of some infrastructure enterprises can continue to generate income for many years in the future.
In fact, in recent years, benefiting from the continuous growth of orders on hand, many infrastructure companies have achieved steady and continuous growth in performance, especially the central enterprises with Chinese prefix. According to the statistics of the reporter of red weekly, from the perspective of the infrastructure construction of 9 central enterprises in the wind sector, there were 5 companies that achieved continuous growth from 2016 to 2020 and the first three quarters of 2021, such as China Railway Group Limited(601390) , China Nuclear Engineering & Construction Corporation Limited(601611) (see Table 2).
At present, a number of other infrastructure companies have issued annual performance forecasts for 2021, and most of them have benefited from the improvement of infrastructure related businesses and recorded growth. Such as China Haisum Engineering Co.Ltd(002116) , Xinjiang Communications Construction Group Co.Ltd(002941) , Sichuan Road & Bridge Co.Ltd(600039) , China Camc Engineering Co.Ltd(002051) , etc. Among them, China Haisum Engineering Co.Ltd(002116) and Xinjiang Communications Construction Group Co.Ltd(002941) have the highest pre increase of more than 100%, and China Camc Engineering Co.Ltd(002051) is expected to turn losses into profits.
However, the gross (net) profit level of the infrastructure industry has not been high for a long time. According to wind data, the overall gross profit margin of Shenwan Jijian sector was 19.45% as of the end of the third quarter of last year, of which the gross profit margin of nine central enterprises was mostly about 10%.
From the perspective of industry insiders, the current situation of low gross profit in the infrastructure sector is difficult to change in the short term, but it can be achieved if some enterprises can achieve fine management and obtain higher quality projects, so as to indirectly improve the gross profit level. The relevant person in charge of the Board Secretary Office of a local state-owned infrastructure listed company told the reporter of red weekly, “The capital construction sector is not a new sector. The gross profit margin of this industry has tended to be stable, which will exist in both central and local enterprises. There will be some differences in the gross profit margin of different types of projects. For example, the gross profit margin of housing construction projects may be high, and the gross profit margin of some other projects with traditional and relatively simple construction methods will be low. But we can get more information Some high-quality projects to improve the gross profit margin can be achieved. “
The relevant person in charge of the Board Secretary Office of another central enterprise infrastructure listed company pointed out to the reporter of red weekly that the gross profit margin will remain in a relatively stable state, mainly relying on obtaining the expanding market cake share to increase revenue and improve profitability. This also puts forward a great test for the fine management of enterprises.
high dividend yield highlights the cost performance advantage
infrastructure valuation improvement space or open
At present, the infrastructure sector is also characterized by undervaluation and high dividend yield. In the view of institutional people, it is precisely due to the undervalued value and high dividend factors that the high cost performance advantage of the infrastructure sector is highlighted and has a certain medium and long-term allocation value.
According to wind data, at present, the overall valuation of Shenwan Jijian sector is only 9 times (compared with 6 times in early June last year), which is only higher than that of banks and steel in Shenwan’s 28 major industries. Among them, China Railway Construction Corporation Limited(601186) , China Railway Group Limited(601390) , Shandong Hi-Speed Company Limited(600350) and other valuation levels are less than 7 times.
In Shi Yuqiang’s view, the underestimation of infrastructure is in a state of being killed by mistake. “In the past few years, due to the decline of market expectations for the high growth of China’s infrastructure and the near end of urbanization, the market has doubts about the sustainability of the growth of large infrastructure, resulting in the shrinking valuation level of large infrastructure. However, I think there is a big misunderstanding. First, from the perspective of space, China’s large infrastructure is far from reaching the ceiling, especially Its policy support. With the increasingly obvious urban cluster effect, there are still many infrastructure weaknesses in some big cities and mega cities, and there is still much room for improvement in these areas. In addition, with the increasing industry concentration of large infrastructure construction, it will undoubtedly accelerate the industry reshuffle. In the field of major and complex projects in the future, the central enterprises of large infrastructure construction will have a stronger market competitive advantage because they have more advantages in talents, technology and capital, and the market demand for the structural allocation of such enterprises will also increase. From these perspectives, the medium and long-term valuation improvement cycle of some large infrastructure enterprises may have started. “
At the same time, the dividend yield of infrastructure is at a relatively high level. According to the statistics of the reporter of red weekly, based on the dividend data in 2020, the overall dividend rate of Shenwan Jijian sector is 2.38%, which is only lower than a few industries such as banking (4.59%), real estate (4.13%), mining (3.99%), steel (3.56%).
“The higher dividend rate of dajijian is a strong support for its lower valuation limit. At present, many infrastructure enterprises have a dividend rate of about 20%, and I think they still have room for further improvement in the future. With the further steady development of these enterprises in the later stage, the dividend rate may even be further increased. This will further boost the valuation in the future.” Shi Yuqiang told the reporter of red weekly.
According to the reporter of red weekly, at present, many enterprises have the characteristics of low valuation and high dividend yield, such as China State Construction Engineering Corporation Limited(601668) , Anhui Construction Engineering Group Corporation Limited(600502) (see Table 3). Zheng Nan, a senior investment consultant of Jufeng investment consulting, said in an interview with the reporter of red weekly, “with the continuous support of the ‘steady growth’ policy, the large infrastructure sector is expected to present greater investment opportunities this year.”
