[core view of this week] we believe that the current main line of steady growth may spread from large central enterprises to local state-owned enterprises. This week, we focused on combing and analyzing the investment logic of local state-owned enterprises listed in construction. We believe that although local infrastructure financing channels are limited under the strict supervision of implicit debt, we can still support local listed state-owned enterprises to become stronger and bigger Promote the listing of infrastructure assets and the issuance of REITs to improve the financing capacity of the capital market. In the future, local governments are expected to focus resources on supporting state-owned listed infrastructure companies. Relevant listed companies are expected to enter a new stage of rapid development and the valuation center is expected to be improved. We are optimistic about local infrastructure listed companies with large regional infrastructure investment space, good regional financial situation and strong resource strength of major shareholders, and focus on recommending or paying attention to high growth local state-owned enterprises Shandong Hi-Speed Road&Bridge Co.Ltd(000498) (pe5.5x), Sichuan Road & Bridge Co.Ltd(600039) (pe7.7x) and Anhui Construction Engineering Group Corporation Limited(600502) (pe6.6x). At present, we continue to be optimistic about the main opportunities for steady growth. In addition to high growth local state-owned enterprises, we focus on: 1) undervalued infrastructure blue chips: core recommendations China Communications Construction Company Limited(601800) (core benefit infrastructure REITs promotion, pe7.2x), China State Construction Engineering Corporation Limited(601668) (January housing construction orders increased against the trend, infrastructure business was significantly strengthened, pe4.3x), key recommendations Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) (pe13x), China Railway Group Limited(601390) (pe5.1x), China Railway Construction Corporation Limited(601186) (pe4.1x), Capital construction design leader China Design Group Co.Ltd(603018) (pe9x); 2) High business elasticity direction: a) steel structure: steel structure continues to benefit from infrastructure improvement and manufacturing investment repair, with emphasis on Changjiang & Jinggong Steel Building(Group)Co.Ltd(600496) (pe12x), Anhui Honglu Steel Construction(Group) Co.Ltd(002541) (pe19x); b) Affordable housing: driven by the policy, the industry demand is expected to speed up, and Shenzhen Capol International&Associatesco.Ltd(002949) (jointly Zwsoft Co.Ltd(Guangzhou)(688083) developed BIM platform software, accelerated digital transformation, pe16x) and Shenzhen Ridge Engineering Consulting Co.Ltd(300977) (pe19x) are mainly recommended; c) New power system: focus on recommending private distribution network EPCO leader Suwen Electric Energy Technology Co.Ltd(300982) (pe22x); d) Urban pipe network: the demand for energy-saving transformation of urban heat supply network is expected to accelerate, and the leader in heating energy saving Runa Smart Equipment Co.Ltd(301129) (pe18x) is recommended.
Local government infrastructure investment funds are limited, and there is an urgent need to broaden financing channels. Local urban investment platform is one of the most important financing channels for infrastructure investment. However, after 2017, the central government continued to tighten the supervision of hidden liabilities of local governments and strictly enforce financial discipline. The financing of urban investment platform was strictly limited, and the capital of infrastructure investment was significantly limited. However, some provinces still have a large demand for infrastructure investment in the future, and there is an urgent need to expand new financing channels. In addition to direct financial contribution, we expect that in the future, local governments may supplement the sources of infrastructure funds in the following three ways: 1) support listed state-owned infrastructure companies to become stronger and bigger and improve the financing capacity of the capital market. 2) Support unlisted infrastructure enterprises or urban investment platforms with related industries to be listed through IPO or backdoor listing and use the capital market for financing. 3) Revitalize the stock assets in hand through REITs and other means.
In the future, local governments are expected to concentrate resources to support state-owned listed infrastructure companies to become stronger and bigger, and enhance the financing capacity of the capital market. The original financing platform can solve most of the capital construction funds, and local infrastructure companies mainly play the role of construction. However, in the new development period of strictly controlling the hidden liabilities of local governments and the leverage ratio, the financing advantages of local infrastructure listed companies are gradually reflected. For local governments, listed companies can use equity financing, which not only widens financing channels and supplements some infrastructure funds, but also will not significantly increase hidden liabilities and leverage. Therefore, it is in line with the demands of local governments to continue to expand and strengthen the scale of local infrastructure listed companies and improve their financing capacity in the capital market. Relevant listed companies are expected to enter a new stage of rapid development and the valuation center is expected to be improved. We suggest to focus on local infrastructure listed companies with large investment space in regional infrastructure, good regional financial situation and strong resource strength of major shareholders.
Profitability, growth ability and newly signed orders: 1) profitability: except for Tibet Tianlu Co.Ltd(600326) with high profit margin of 45% for cement sales, the gross profit margin and net profit margin of Shandong Hi-Speed Road&Bridge Co.Ltd(000498) / Sichuan Road & Bridge Co.Ltd(600039) / Shanghai Pudong Construction Co.Ltd(600284) / Shanghai Tunnel Engineering Co.Ltd(600820) in other state-owned enterprises are relatively high, and the roe is also higher than 10%, but Shaanxi Construction Engineering Group Corporation Limited(600248) / Zhejiang Construction Investment Group Co.Ltd(002761) roe is higher, reaching 30% / 21% respectively in 2020, The main reason is that the equity multiplier is large (the asset liability ratio is about 90%). 2) Growth capacity: local state-owned enterprises have generally shown rapid revenue growth in recent years, of which Shandong Hi-Speed Road&Bridge Co.Ltd(000498) / Shanghai Pudong Construction Co.Ltd(600284) CAGR is about 40% from 2017 to 2020. At the same time, 2021q1-3 also generally achieved high revenue growth, Shandong Hi-Speed Road&Bridge Co.Ltd(000498) / Xinjiang Communications Construction Group Co.Ltd(002941) / Sichuan Road & Bridge Co.Ltd(600039) / Anhui Construction Engineering Group Corporation Limited(600502) revenue increased by 87% / 75% / 39% / 31% respectively; The performance growth rate is differentiated. The CAGR of Shandong Hi-Speed Road&Bridge Co.Ltd(000498) / Sichuan Road & Bridge Co.Ltd(600039) / Shaanxi Construction Engineering Group Corporation Limited(600248) performance in three years is outstanding, reaching 32% / 42% / 46% respectively, and the performance of 2021q1-3 Shandong Hi-Speed Road&Bridge Co.Ltd(000498) / Sichuan Road & Bridge Co.Ltd(600039) / Xinjiang Communications Construction Group Co.Ltd(002941) / Chongqing Construction Engineering Group Co.Ltd(600939) / Shaanxi Construction Engineering Group Corporation Limited(600248) performance is outstanding, reaching 89% / 101% / 110% / 121% / 117% respectively. 3) Orders: with the active support of the infrastructure investment platform of the local government, local leading construction enterprises performed well in signing orders in 2021, among which Shandong Hi-Speed Road&Bridge Co.Ltd(000498) / Sichuan Road & Bridge Co.Ltd(600039) / Xinjiang Beixin Road & Bridge Group Co.Ltd(002307) orders increased significantly, and the new orders signed in 2021 increased by 44% / 153% / 102% respectively.
In terms of financial quality: 1) turnover rate: there are 6 Shandong Hi-Speed Road&Bridge Co.Ltd(000498) / Sichuan Road & Bridge Co.Ltd(600039) / Shanghai Construction Group Co.Ltd(600170) / Shanghai Pudong Construction Co.Ltd(600284) whose turnover rate of accounts receivable and bills exceeds 5 times, and most of the other state-owned enterprises are 2-4 times; The turnover rate of inventory (including contract assets) of Zhejiang Construction Investment Group Co.Ltd(002761) / Tibet Tianlu Co.Ltd(600326) / Shaanxi Construction Engineering Group Corporation Limited(600248) is relatively high, more than 4 times, and most of the other state-owned enterprises are 2-3 times. 2) Asset liability ratio: the debt ratio of local state-owned enterprises is generally at a high level of more than 75%, but the asset liability ratio of Shanghai Pudong Construction Co.Ltd(600284) / Tibet Tianlu Co.Ltd(600326) is low, 62% / 51% respectively; The interest bearing asset liability ratio is highly differentiated. The liabilities of most state-owned enterprises are operating liabilities, Guangdong No.2 Hydropower Engineering Company Ltd(002060) , Xinjiang Beixin Road & Bridge Group Co.Ltd(002307) interest bearing asset liability ratio exceeds 50%, and the interest bearing asset liability ratio of other state-owned enterprises is between 7% – 50%, of which the interest bearing asset liability ratio of Shanghai Pudong Construction Co.Ltd(600284) / Shaanxi Construction Engineering Group Corporation Limited(600248) is only 7% / 10% respectively. 3) Short term solvency: the current ratio of most state-owned enterprises is between 1-2, and the relative size of quick ratio is similar to that of current ratio. Among them, the current ratio and quick ratio of Tibet Tianlu Co.Ltd(600326) / Shanghai Pudong Construction Co.Ltd(600284) / Xinjiang Communications Construction Group Co.Ltd(002941) are relatively high, indicating that the pressure of short-term debt repayment is small.
From the economic data of the provinces and cities where the listed local state-owned enterprises are located: 1) in terms of GDP growth, on the basis of the low base in 2020, most of the provinces and cities where the listed local state-owned enterprises are located will achieve a GDP growth rate of more than 8% in 2021; At present, with the two provincial sessions basically held in various regions, among the GDP growth targets set by the provinces and cities where the listed local state-owned enterprises are located in 2022, Tibet / Anhui have reached about 8% and 7.5% respectively, which is at a relatively high level. Sichuan has set a GDP growth rate of about 6.5%, which is at the second echelon. The GDP targets of Zhejiang / Xinjiang / Shaanxi are about 6%, and the rest of the provinces and cities have set a GDP growth target of about 5.5%.
2) In terms of investment objectives, due to the high correlation between transportation infrastructure and the demand side of local state-owned enterprises, we have counted the transportation infrastructure investment objectives of these provinces and cities in 2022. Among them, the planned investment in transportation fixed assets in Anhui / Xinjiang increased by 33% compared with 2021, Shandong increased by 12% and Heilongjiang increased by more than 10%.
Summary: local state-owned enterprises mainly recommend and pay attention to Shandong Hi-Speed Road&Bridge Co.Ltd(000498) , Sichuan Road & Bridge Co.Ltd(600039) , Anhui Construction Engineering Group Corporation Limited(600502) . Based on the above comparison of profitability, growth capacity, orders, financial quality and provincial and municipal economic data, we suggest to focus on: 1) Shandong Hi-Speed Road&Bridge Co.Ltd(000498) : high profitability, fast growth of revenue and performance, abundant orders on hand, low interest bearing asset liability ratio, and steady growth of planned investment in the Province in 2022. With the merger of the major shareholder Shandong Hi-Speed Company Limited(600350) and the second shareholder Qilu transportation, The company is expected to further increase the city share in the province and strengthen the regional leading advantage. 2) Sichuan Road & Bridge Co.Ltd(600039) : high profitability, rapid expansion of revenue and performance in recent years, abundant orders on hand and strong operation capacity. The GDP target of Sichuan Province will reach about 6.5% in 2022, at a high level. In the future, on the one hand, after the merger of major shareholders of the company, the voice in the province will increase, and the contracting ability of large projects will be enhanced. It is expected that the competition in the highway market in the province is expected to ease, the profitability of the project is expected to improve, and the two wheel drive of scale and efficiency is expected to promote the leapfrog development of the company in the 14th five year plan; On the other hand, the company’s diversified industries such as lithium battery and clean energy continue to be laid out, and it is expected to continue to build new business growth points in the future. 3) Anhui Construction Engineering Group Corporation Limited(600502) : the gross profit margin is high, the revenue and performance accelerate significantly in 2021, the GDP target in the province will reach more than 7% in 2022, and the investment in transportation fixed assets will increase significantly by 33% year-on-year. The business environment in the province is excellent. At the same time, the development of hydropower, pumped storage and prefabricated buildings of the company is worth looking forward to.
Investment suggestions: at present, we continue to be optimistic about the main opportunities for steady growth: 1) undervalued infrastructure blue chips: core recommendations China Communications Construction Company Limited(601800) , China State Construction Engineering Corporation Limited(601668) , key recommendations Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) , China Railway Group Limited(601390) , China Railway Construction Corporation Limited(601186) , and leading infrastructure design China Design Group Co.Ltd(603018) ; 2) High growth local state-owned enterprises: focus on recommending or paying attention to Shandong Hi-Speed Road&Bridge Co.Ltd(000498) , Sichuan Road & Bridge Co.Ltd(600039) , Anhui Construction Engineering Group Corporation Limited(600502) ; 3) High elasticity direction: a) steel structure: key recommendations Changjiang & Jinggong Steel Building(Group)Co.Ltd(600496) , Anhui Honglu Steel Construction(Group) Co.Ltd(002541) ; b) Affordable housing: driven by policies, the demand of the industry is expected to speed up, and Shenzhen Capol International&Associatesco.Ltd(002949) , Shenzhen Ridge Engineering Consulting Co.Ltd(300977) are mainly recommended; c) New power system: focus on recommending private distribution network EPCO leader Suwen Electric Energy Technology Co.Ltd(300982) ; d) Urban pipe network: the demand for energy-saving transformation of urban heat supply network is expected to accelerate, and the leader in heating energy saving Runa Smart Equipment Co.Ltd(301129) is recommended.
Risk tips: the risk of policy promotion is less than expected, the risk of epidemic impact is more than expected, the risk of accounts receivable, overseas business risk, etc.
