Market review last week: last week, the market fell by 0.9%, the small and medium-sized board and the gem fell by 2.1% and 3.6% respectively, and Wande a fell by 1.7% last week. The building decoration industry ranked first among the 31 industries in Shenwan, up 6.1%, outperforming wandequan a7.2% 8 percentage points. From the perspective of valuation level, PE and Pb in the industry are 11 and 1 times respectively, which are at a low level in Shenwan 31 industries. From the perspective of sub industries, decoration and infrastructure construction led the increase, rising by 4.1% and 2.6% respectively.
The growth rate of orders of central enterprises is high, and the construction leaders benefit from the steady growth policy. From the eight Central Construction Enterprises’ announcement of their newly signed contracts in 2021, they achieved positive growth year-on-year from January to December, and the cumulative total amount of newly signed contracts exceeded 13 trillion yuan, an increase of 23.4% over the same period last year (108812 billion yuan). This year, new special bonds have been issued and invested in infrastructure construction related fields, especially in new infrastructure construction. With the gradual development of the “steady growth” policy, the newly signed contracts of China State Construction Engineering Corporation Limited(601668) enterprises will maintain growth as a whole, and the central enterprises of leading construction will benefit significantly.
China’s construction peak has passed, and the core of construction enterprises in the future lies in management. The core factor of improving performance and valuation has changed from industry dividend to internal efficiency. Central enterprises and state-owned enterprises have dominated the construction industry, but their efficiency has been significantly lower than that of private enterprises in history. However, the financial data in recent years show that the internal operation efficiency of central enterprises and state-owned construction companies is gradually improving, and the financial structure is also optimized year by year, which is conducive to improving the valuation center.
The policy increases water conservancy and drives the steady growth of infrastructure construction. On March 30, the executive meeting of the State Council proposed to start another batch of projects that have been included in the plan and have mature conditions this year, including major water diversion and transfer projects such as the follow-up project of the South-to-North Water Transfer, backbone flood control and disaster reduction, danger removal and reinforcement of dangerous reservoirs, irrigation area construction and transformation, and it is expected that the annual investment will be about 800 billion yuan. In Q1 this year, the national water conservancy investment will be 107.7 billion yuan, an increase of 35% compared with the same period last year. At the same time, local government bonds have also increased support for water conservancy projects. In the first quarter of this year, water conservancy projects have implemented special bonds of local governments of nearly 50 billion yuan. In 2022, water conservancy will focus on the construction of major projects such as national water network and basin flood control and the weakness of intelligent water conservancy. Under the condition of further increase of financial expenditure, water conservancy investment may maintain a high growth rate.
While increasing investment in water conservancy construction, the investment structure continues to be optimized. Water conservancy projects play an important role in ensuring national water security, promoting regional coordinated development, stimulating effective investment demand and promoting stable economic growth. According to the national development and Reform Commission, there are three main measures to promote the commencement and construction of major water conservancy projects this year: first, speed up the progress of the preliminary work of the project; Second, increase investment support; Third, deepen the reform of water conservancy investment and financing. In 2022, the central government will increase its support, optimize the expenditure structure and improve the efficiency of policies. In terms of the key points of support, it will adhere to the goal orientation and result orientation, focus on the weak points, focus on key areas and key regions, further improve the incentive and restraint mechanism and urge local governments to implement the investment responsibility.
The construction sector had the value of over allocation in the first half of the year. With the release of Q1 macro data in mid April, it is expected that the overall economy will be seriously dragged down by the epidemic, steady growth is expected to be further strengthened, and infrastructure will continue to bear the heavy responsibility of supporting the economy. The release of infrastructure data and the disclosure of recent annual reports will strengthen market confidence under double-layer verification, and the sector will continue to usher in a wave of rising market in the short term.
Investment suggestion: we suggest to over allocate the construction sector.
Risk tips: macroeconomic downside risk and industrial policy risk.
