[core view of this week] this week, the management pointed out that China’s economy is facing a more complex environment such as the impact of the epidemic and the rise of commodity prices. “Some uncertainties exceed expectations” and “some market players have been seriously impacted”, and the downward pressure on the economy has further increased. In this regard, it is emphasized that “we should attach great importance to and be alert to new problems and challenges”, “timely introduce measures conducive to the expected stability of the market”, “policies and measures should rely on the front force and study new plans”. The recent series of statements show that the management has a firm and urgent attitude towards steady growth, and there is still much room for follow-up policies. We continue to be firmly optimistic about the main line of steady growth. It is expected that infrastructure and real estate will become the main focus. Considering policy support, rush work after the epidemic and the low base in the second half of last year, the fundamentals of the construction industry are expected to improve significantly in the second half of last year, which is expected to drive the valuation expansion of the sector. Targets with high valuation cost performance and high cashability of fundamentals are more flexible. Key recommendations: 1) undervalued construction central enterprises China State Construction Engineering Corporation Limited(601668) (this month’s gold stock, the core beneficiary target of stable growth of infrastructure + real estate, high-quality assets of CNOOC real estate need to be revalued, pe4.7x), China Railway Group Limited(601390) (pe5.4x, Q1 orders increased by 84% more than expected), China Communications Construction Company Limited(601800) (pe7.7x, REITs project was successfully issued, and the placing ratio hit a new low since the issuance of REITs) Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) (pe12x), China Railway Construction Corporation Limited(601186) (pe4.2x), etc; 2) High growth local state-owned enterprises Shandong Hi-Speed Road&Bridge Co.Ltd(000498) (pe5.3x); 3) Capital construction design leader China Design Group Co.Ltd(603018) (pe8x), Jsti Group(300284) (pe14x); 4) The steel structure leader benefits from the overweight of infrastructure construction and the rapid and large-scale demand for photovoltaic buildings, and is optimistic about Changjiang & Jinggong Steel Building(Group)Co.Ltd(600496) (pe11x) and Anhui Honglu Steel Construction(Group) Co.Ltd(002541) (pe15x).
The management has a firm and urgent attitude towards steady growth, there is still much room for policies, and the sector market will continue. Since November last year, we have been optimistic about the investment opportunities of the main line of steady growth. In February, we issued the special report “five times of deep resumption of” steady growth “. During the Qingming holiday, we once again reminded the main line of steady growth and recommended China State Construction Engineering Corporation Limited(601668) , leading the forward-looking view of steady growth in the market. This week, the national standing committee pointed out that China’s economy faces more uncertainty, “some exceed expectations” and “some market players have been seriously impacted”. At present, the outbreak of the epidemic in some parts of China has also had a great impact on the economy. International geopolitical factors have led to a sharp rise in global commodity prices and a rise in the cost of raw materials for enterprises, resulting in a significant increase in business difficulties, an increase in the unemployment rate and a further increase in the downward pressure on the economy. In this regard, the national Standing Committee proposed that “we should attach great importance to and be alert to new problems and challenges”, “all departments should focus on the overall situation and take the initiative” and “timely introduce measures conducive to the expected stability of the market”. In the Symposium of experts and entrepreneurs on the economic situation held by the premier of the State Council on April 7, it also proposed that “policies and measures should rely on the front force, clarify the plans to be launched as early as possible, and study and prepare new plans at the same time” “Optimize investment approval and speed up project construction progress”. According to the series of statements, the management has a firm and urgent attitude towards stable growth in the near future, and there is still much room for follow-up policies. It is expected that the follow-up infrastructure and real estate will become the main focus. Considering the factors of policy support, rush work after the epidemic and low base in the second half of last year, the fundamentals of the construction industry are expected to improve significantly in the second half of last year, which is expected to drive the significant expansion of sector valuation, Active configuration is recommended.
Statistics of key projects in various provinces and cities: the investment planned to be completed during the year will increase by about 8%, helping to stabilize the growth of infrastructure and repair the investment in manufacturing industry. This week, Bloomberg reported that China plans to launch a $2.3 trillion infrastructure investment plan, which is expected to be the sum of the 2022 key project plans announced in many places since the beginning of the year. It should be pointed out that most key projects need to be completed in several years, and the proportion of manufacturing investment projects is not low. Therefore, the total investment can not represent the capital construction completion this year, but the year-on-year growth rate can provide a certain reference for the evaluation of the elasticity of capital construction investment. According to the public information statistics of provincial and municipal governments, up to now, most provinces and cities have issued investment plans for key projects in 2022. The total investment of 11 provinces and cities is planned to be 28.7 trillion, with a comparable growth rate of about 8%; 20 provinces and cities plan to complete 10.0 trillion investment in key projects this year, with a comparable growth rate of about 8%. Among them, Anhui, Henan and Zhejiang plan to complete more than trillion investment in key projects this year, reaching 1.7/1.3/1.1 trillion respectively. Take these three provinces and cities as an example: in the investment amount of key projects in Anhui Province, infrastructure accounts for nearly half, and strategic emerging + traditional industry projects account for about 30%; The detailed project amount of key projects in Henan Province is not disclosed. In terms of the number of projects, the number of industrial transformation and upgrading accounts for about 70%, and the number of infrastructure projects accounts for about 16%; Among the investment in key projects in Zhejiang Province, infrastructure projects account for 66% (including 21% of transportation + 46% of ecological environmental protection, urban renewal and water conservancy facilities), and the rest are high-tech and industrial projects. On the whole, infrastructure and industrial projects (mainly manufacturing) account for a relatively high proportion of key projects. Under the background of steady growth, with the acceleration of subsequent projects, it is expected to provide support for the steady growth of infrastructure and the repair of manufacturing investment.
Continued core recommendation in April: gold stock China State Construction Engineering Corporation Limited(601668) : the core of steady growth of real estate + infrastructure benefits, and the high-quality leader of CNOOC real estate needs to be revalued. In terms of real estate business: under strict supervision, the supply side of the real estate industry continues to be cleared, and the market share is concentrated to the leader of central state-owned enterprises China State Construction Engineering Corporation Limited(601668) its CNOOC real estate (with CSCEC holding about 56%) has long adhered to the low leverage operation strategy and stable financial indicators. As the leader of central enterprises, it is expected to obtain more high-quality land resources and acquire real estate enterprise projects with risks in operation in the future, accelerate the integration of industries, realize the continuous improvement of market share, and the value needs to be revalued urgently. In terms of construction business: 1) the market share of the company has increased from 4.5% in 2009 to 10.8% in 2021. In the future, factors such as centralized procurement of central enterprises, large-scale and comprehensive projects and assembly development are expected to further accelerate the increase of the leading market share; 2) In recent years, the company has continued to optimize the construction business structure, the proportion of public construction projects has increased, and the proportion of residential projects has decreased from 50% in 2017 to 31% in the first three quarters of 2021, driving the continuous improvement of the profitability and operation quality of construction business. In terms of state-owned enterprise reform: the company actively promoted the state-owned reform, carried out the fourth phase of restricted stock grant throughout the company, and implemented restricted stock options in the overseas development of subsidiaries. This year is the year when the three-year action plan for national reform ends and the results are tested. A number of reforms are expected to fully stimulate the company’s business vitality and enhance the market value power. At present, the company’s valuation is at an all-time low, with a dividend rate of 4%. Six ministries and commissions have stated that they will stabilize real estate and steady growth, and the subsequent accelerated implementation of policies is expected to drive the valuation repair. We predict that the company’s net profit attributable to the parent company in 21-23 years will be 49.5/54.1/58.7 billion yuan respectively, with a year-on-year increase of 10% / 9% / 9%, PE of 5.2 / 4.7 / 4.4 times and Pb (LF) of 0.81 times respectively. It continues to be recommended by the core!
China Railway Group Limited(601390) : orders in Q1 increased by 84%, and the leader of large infrastructure construction benefited from steady growth. The company signed a new order of 605.7 billion yuan in Q1, with a year-on-year increase of 84.0%, the growth rate reaching a single quarter high since 2014. The main reasons are as follows: 1) with the steady growth policy, the company has actively grasped the opportunities and strengthened market development.
2) The base was low in the same period last year (21q1 orders fell 2.5% year-on-year). In terms of business, the newly signed orders of infrastructure business were 543.5 billion yuan, a significant increase of 94% year-on-year, of which railway / highway / municipal and other orders were 569 / 849 / 401.7 billion yuan, an increase of 7.9% / 147.5% / 108.1% respectively. The orders of highways and municipal services have a significant force. From the disclosure of major orders, municipal services are mainly industrial parks, urban renewal and other orders; A number of large-scale highway construction, expansion and reconstruction projects have been signed. Among non contracting businesses, survey and design / industrial equipment / real estate development / others were newly signed with RMB 119 / 149 / 72 / 28.3 billion respectively, yoy + 157.5% / + 5.4% / – 28.4% / + 38.4%. The high growth of design business is expected to be mainly due to the acceleration of the preliminary work of infrastructure projects in the first quarter; The decline in real estate orders is expected to be mainly affected by the overall environment of the industry. By the end of 2021, the outstanding contract amount of the company was 4.21 trillion yuan, about four times the revenue in 2021. As the leader of large infrastructure construction, the company has strong order growth, clear performance objectives and continuous improvement of incentive mechanism. The current valuation of PE in 22 years is only 5.4 times, which is in the lowest range in history. It is expected to usher in valuation repair driven by steady growth policy. It is currently recommended.
Local governments have sufficient power to become powerful countries, and infrastructure listed enterprises have sufficient power. They focus on the leader of state-owned enterprises Shandong Hi-Speed Road&Bridge Co.Ltd(000498) . At present, although the financing channels of local infrastructure are limited under the strict supervision of implicit debt, the financing capacity of the capital market can still be improved by supporting the strengthening and expansion of local listed state-owned construction enterprises, promoting the listing of infrastructure assets, and issuing REITs. In the future, the local government is expected to focus its resources on supporting state-owned listed infrastructure companies, the 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 high-growth local state-owned enterprises Shandong Hi-Speed Road&Bridge Co.Ltd(000498) : “the mileage target of new expressways / high-speed railways in Shandong during the 14th Five Year Plan period is 19% / 68% higher than the actual mileage of the 13th Five Year Plan period respectively. The investment in transportation construction in the province in 2022 is expected to exceed 270 billion yuan, an increase of 12% over last year, Shandong’s transportation infrastructure is expected to improve. Shandong Hi-Speed Company Limited(600350) group, the largest shareholder of the company, was formed by the merger of Shandong Hi-Speed Company Limited(600350) group and Qilu transportation group in 2020. The investment and construction market share of expressways in the province has increased from 39% to 94%, which is expected to drive Shandong Hi-Speed Road&Bridge Co.Ltd(000498) a significant increase in the share of high-speed construction in the province and a rapid growth in profits. We estimate that the net profit attributable to the parent company from 2021 to 2023 will be RMB 2.1/27/3.5 billion respectively, with a year-on-year increase of 58%/28%/27%, and the corresponding PE of the current share price is 6.8/5.3/3.8 times respectively. The current average valuation of comparable companies is 9.0 times. Considering the company’s good growth and low valuation in the future, we continue to focus on recommendation.
Investment suggestions: continue to be firmly optimistic about the main line of steady growth, and it is expected that infrastructure and real estate will become the main focus. Focus on recommending central enterprises of undervalued construction China State Construction Engineering Corporation Limited(601668) , China Railway Group Limited(601390) , China Communications Construction Company Limited(601800) , Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) , China Railway Construction Corporation Limited(601186) , etc; High growth local state-owned enterprises Shandong Hi-Speed Road&Bridge Co.Ltd(000498) ; Design faucets China Design Group Co.Ltd(603018) , Jsti Group(300284) ; Steel structure leaders Changjiang & Jinggong Steel Building(Group)Co.Ltd(600496) , Anhui Honglu Steel Construction(Group) Co.Ltd(002541) , benefiting from the overweight of infrastructure and the large demand of photovoltaic buildings.
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.
