The orders of infrastructure industry chain increased more than expected, which verified the logic of boom recovery. Judging from the orders of local state-owned enterprises and central enterprises in the current major infrastructure industry chain, they are significantly better than expected, which verifies our previous view that the 22q1 infrastructure landscape is high.
From the perspective of orders from central enterprises, China National Chemical Engineering Co.Ltd(601117) 22q1 orders grew by + 90% year-on-year, and new orders signed in a single month in March increased by + 98% year-on-year. Orders still maintained a high growth rate on the base of 21q1, China Railway Group Limited(601390) 22q1 new orders increased by + 84% year-on-year, Metallurgical Corporation Of China Ltd(601618) and Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) due to the high base of 21q1, but 22q1 orders still grew by 14% and 7% year-on-year; In addition, 22q1 China National Chemical Engineering Co.Ltd(601117) .
From the orders of local state-owned enterprises, local infrastructure is more flexible. We’ve seen from the orders of ‘ Anhui Construction Engineering Group Corporation Limited(600502) the year-on-year growth rate exceeded 300%, and the growth rate of Shanghai Pudong Construction Co.Ltd(600284) orders was nearly 50%, indicating the high enthusiasm of local infrastructure resumption. In order to help steady growth and achieve a good start to the economy in 2022, all provinces started major projects in advance, After the new year’s day, Shandong, Anhui, Jiangsu, Jiangxi, Hunan and other provinces began to promote the centralized commencement of major projects, so as to realize the leadership of stability, seek progress in stability and play the key role of investment. Despite the repeated impact of the epidemic recently, we judge that the subsequent steady growth is still expected to increase. Considering that the actual demand may become the main line of the development of the 14th Five Year Plan period and the significant characteristics of structure and regionalization, we maintain the growth judgment of 4% ~ 5% of the annual growth of infrastructure.
The timing of the RRR reduction was in line with expectations, and the policy helped to broaden credit. In order to support the development of the real economy and promote the steady decline of comprehensive financing costs, the people’s Bank of China decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25, 2022 (excluding financial institutions that have implemented the deposit reserve ratio of 5%). In order to increase the support for small and micro enterprises and “agriculture, rural areas and farmers”, for urban commercial banks without inter provincial operation and agricultural commercial banks with deposit reserve ratio higher than 5%, an additional 0.25 percentage point will be reduced on the basis of reducing the deposit reserve ratio by 0.25 percentage point. Considering that China’s economy is currently greatly affected by the epidemic, and economic activities in many provinces and cities across the country are damaged by the epidemic prevention and control; At the same time, real estate consumption has not improved under the policy of urban governance. Therefore, it is necessary for the central bank to reduce the reserve requirement, release loose expectations to the market and boost market confidence.
Market Review
Last week, the construction (CITIC) index fell 4.78%, the Shanghai and Shenzhen 300 index fell 0.47%, and all three sub sectors fell. Among individual stocks, Wuhan Nusun Landscape Co.Ltd(300536) (+ 5.75%), Zhejiang Reclaim Construction Group Co.Ltd(002586) (+ 5.62%), Shanghai Prosolar Resources Development Co.Ltd(600193) (+ 4.95%), Beijing New Space Technology Co.Ltd(605178) (+ 4.61%), Lets Holdings Group Co.Ltd(002398) (+ 3.11%) led the increase.
Investment advice
Under the medium and long-term growth dimension of “construction +” leader, enterprises with “new energy” and “chemical” industries have gradually entered the performance fulfillment period, and their performance is expected to grow rapidly. Under the dimension of valuation restoration of value varieties, the leaders of local state-owned enterprises are expected to enjoy the high boom of regional infrastructure, and the profit elasticity brought by the improvement of operating efficiency has initially appeared. In the medium and long term, there are both opportunities for steady growth and report quality improvement. The increase of market share of central enterprises supports the continuous growth of revenue. After the completion of leverage reduction, roe still has obvious upward elasticity. With the continuous strengthening of the profit release ability and willingness of central enterprises, It also has strong elasticity of valuation and repair.
Risk tips: Infrastructure & real estate investment went down more than expected, new energy & chemical business expansion was less than expected, the concentration of assembled leaders was less than expected, and the progress of efficiency improvement in the reform of central enterprises and state-owned enterprises was less than expected.
