There is demand: unexpected factors exceed expectations, policies are strengthened in time, and the stable growth in 22 years mainly depends on infrastructure
Central Committee: the central economic work conference and the 22 year government work report put forward that in the past 22 years, the macro economy faced triple pressure and was at the threshold of climbing over the barrier, with steady growth and employment, and the growth rate of 5.5% GDP unchanged; On April 6, the executive meeting of the State Council pointed out: at present, the complexity and uncertainty of China’s external environment have increased, and some have exceeded expectations. China’s epidemic has occurred frequently recently, the smooth economic cycle has encountered some constraints, and the new downward pressure has further increased. We should attach great importance to and be alert to new problems and challenges. Put steady growth in a more prominent position, coordinate steady growth, adjust structure and promote reform, and effectively stabilize the overall macroeconomic market; On April 7, the Premier held an economic Symposium and pointed out that some unexpected factors in the current international Chinese environment exceeded expectations, and the economic operation faced greater uncertainty and challenges. Policies and measures should be strengthened in advance and timely. Those that have been issued should be implemented in place as soon as possible, and those to be launched should be made clear as early as possible. At the same time, new plans should be studied and prepared.
We believe that at present, the epidemic situation in China is repeated at many points, the contraction of consumer demand may increase, the conflict between Russia and Ukraine continues, the risk of commodity supply shock has not been eliminated, and the necessity and urgency of stabilizing growth and employment are further strengthened than at the beginning of the year. As an effective means to stimulate employment and boost the economy, infrastructure investment has further highlighted the importance of achieving stable economic growth in the past 22 years, and new measures to stabilize infrastructure growth may be brewing.
Projects: the number of major projects increased rapidly, and the number of new contracts signed by eight central construction enterprises exceeded 13 trillion in 21 years, with a high increase of 13%
The average 22-year fixed investment target of all provinces is 8.1%, the investment amount of major projects has increased by 12.4%, and the proportion of infrastructure construction is high: according to the information publicly disclosed by the two sessions of all provinces in January, 21 provinces released the target growth rate of 22-year fixed investment, with an average of 8.1%, up 1.1pct from the actual growth rate of 7.0% in 21 years. As of April 8, under comparable standards, 26 provinces announced 22 year major projects, with a total investment of 14.1 trillion, a year-on-year increase of 12.4%, of which infrastructure investment in Zhejiang, Guangdong and Xinjiang accounted for more than 66%, 55% and 47% respectively. The central construction enterprises have sufficient order reserves and the new signing of 22q1 has made a good start: in the whole year of 21, the new signing of the eight central construction enterprises totaled more than 13 trillion yuan, a year-on-year increase of 13%, realizing a high and rapid growth, and there are sufficient contracts in hand for 22 years; 22q1, China Railway Group Limited(601390) new contracts exceeded 605.7 billion, an increase of 84% year-on-year; January February Metallurgical Corporation Of China Ltd(601618) newly signed 208.6 billion yuan, up 15% year on year.
Clear focus: by combing the work reports of provincial governments and the list of major projects, we believe that the key investment directions in the past 22 years are water conservancy construction, new energy infrastructure, traditional infrastructure and urban area development (including affordable housing). On April 8, the regular policy briefing of the State Council proposed to focus on promoting the preliminary work of 55 major water conservancy projects in 2022, and about 800 billion yuan of water conservancy investment can be completed in the whole year.
Available funds: cross cycle adjustment, sufficient financial bullets, and 1.3 trillion special bonds have been issued in 22q1
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 over revenue of 488.9 billion yuan in the 21st year will be used to supplement the budget stability adjustment fund in the 22nd year. In terms of investment, about 24% of the general public budget expenditure in 21 years was invested in infrastructure. Local special bonds: 22q1 issued 1.3 trillion, the fastest in the same period. 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; 22q1 has issued 1.3 trillion yuan of special bonds, accounting for 89% of the amount approved in advance, accounting for 36% of the whole year, and the issuance progress has exceeded 19 or 20 years; In terms of investment, 61% of the special bonds issued in 22q1 were invested in infrastructure, significantly higher than 53% in the whole year of 21. Government funds: in the past 21 years, the government funds have exceeded 2 trillion yuan in revenue and expenditure savings, and the carry over balance has provided ammunition for 22 years of infrastructure investment. About 45% of the expenditure of local government funds is invested in urban and rural infrastructure; From January to February of 22 years, the cumulative real estate investment was + 3.7% year-on-year, and the corresponding land purchase fee was + 11.3% year-on-year.
After the national regular meeting, the valuation was slightly repaired, and the second market of the construction sector with steady growth may have just started
Previous resumption of steady growth: under 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.
Valuation quantile: in terms of the industry, since the convening of the national Standing Committee on December 10, 2001, the valuation has been slightly repaired from mid and late December to early February, and callback from late February to March. It is currently at the bottom and optimistic about the secondary market. As of the closing on April 8, the pe-ttm and Pb valuation of the construction industry were 9.4 times and 0.96 times respectively, 13% and 9% higher than the closing value on December 10, 2001. In terms of individual stocks, (1) the current PE valuation of three central enterprises of traditional construction – China Railway Construction Corporation Limited(601186) , Metallurgical Corporation Of China Ltd(601618) , China Railway Group Limited(601390) and other central enterprises is at the absolute bottom (3% ~ 5% valuation quantile) in the past 10 years, with sufficient margin of safety. The PE valuation quantile of China Communications Construction Company Limited(601800) PE is 20%, and the Pb valuation quantile is only 10%, which is still at the historical low; (2) China Energy Engineering Corporation Limited(601868) , Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) , the central enterprise of new energy infrastructure and the top 2 contractor of water conservancy and hydropower projects: the current share price corresponds to 11 times of PE in 22 years, and the compound annual growth rate of performance in the next three years is about 15%, which is undervalued.
Investment suggestions:
1) recommendation: China Energy Engineering Corporation Limited(601868) , Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) . Short term benefit from steady growth + new energy infrastructure, medium and long-term transformation of new energy investment and construction:
2) recommendation: China Railway Construction Corporation Limited(601186) . Benefit from stable growth in the short term, infrastructure development + urban area development, and REITs, transformation investors and operators in the medium and long term.
3) recommendation: Metallurgical Corporation Of China Ltd(601618) . Benefit from stable growth in the short term, flexibility in resource and mineral performance, benefit from “double carbon” in the medium and long term, and increase the layout of resource business
4) focus on: China Railway Group Limited(601390) (equity incentive, the second growth curve of development force), China Communications Construction Company Limited(601800) (riets issuance drives the improvement of statements), China State Construction Engineering Corporation Limited(601668) (revaluation of real estate sector value and urban area development).
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.
