The rise of the construction sector outperformed the market this week. In November, infrastructure investment declined, the decline in real estate investment narrowed, the decline in construction and completion improved significantly, and real estate sales also decreased year-on-year. Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) divested the real estate business and placed 24.65 billion yuan of high-quality power grid auxiliary assets.
The overall rise of construction outperformed the market, and the segments rose more or fell less: this week, the Shenwan construction index closed at 2318.1 points, up 3.5% month on week, outperforming the market. The industry’s average price to book ratio was 1.0 times, slightly higher than that of last week. Segments rose more or fell less, of which the fabricated rose by 4.7%, with the largest increase; Industrial construction fell 1.1%, the largest decline.
Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) divested the real estate business and placed 24.65 billion yuan of high-quality power grid auxiliary assets: on January 6, Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) issued an announcement to disclose that it would carry out asset replacement with the controlling shareholder power construction group. According to the announcement, in order to properly solve the horizontal competition between the company and the power construction group, Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) will replace the real estate sector assets with the high-quality power grid auxiliary assets of 24.65 billion yuan held by the power construction group, and the difference of 65.343 million yuan will be paid by the power construction group in cash. From 2015 to 2020, Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) real estate business revenue continued to increase, but the revenue growth rate declined all the way, and the contribution rate to the total revenue also decreased. In recent years, with the continuous tightening of relevant policies in the real estate industry, the real estate business is more limited, and is currently in the stage of energy structure transformation. We believe that Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) asset replacement and stripping of real estate business with power construction group is reasonable, which is not only in line with the policy guidance direction, but also conducive to Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) increasing investment in energy structure transformation. Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) the announcement released on January 6 also shows that the overall profitability of the invested assets in this transaction is higher than that of the invested assets, which is conducive to thickening the company’s return on net assets and earnings per share, and improving the company’s profitability and asset quality.
Infrastructure investment fell year-on-year, and the decline in real estate investment narrowed: in November, the fixed asset investment was 7.0 trillion, a decrease of 2.2%, of which the completed investment in infrastructure and real estate development was 1.8 trillion and 1.2 trillion respectively, with a year-on-year growth rate of – 7.3% and – 4.3% respectively. In November, real estate and infrastructure investment continued to decline year-on-year, but the year-on-year decline in real estate investment was smaller than that in October. In infrastructure construction, the investment in power, transportation and public utilities was 0.34 trillion yuan, 0.56 trillion yuan and 0.85 trillion yuan respectively. The year-on-year growth rates were – 1.4%, – 9.5% and – 8.1% respectively. The year-on-year decline in infrastructure investment in this month is larger than that in October, the year-on-year stability of power investment is basically maintained, and the year-on-year decline in transportation and public investment is obvious. However, the investment in public water conservancy increased significantly compared with October, with a growth rate of 14.3%.
The decline in construction and completion improved, and the land transaction was basically stable: in November, the planned land transaction area in 100 large and medium-sized cities totaled 110 million square meters, with a decrease of 0.2%, and the average transaction floor price was 2660 yuan / square meter. The construction, completion and sales areas were 160, 115 and 150 million square meters respectively, with a year-on-year growth rate of – 21.0%, 15.4% and – 14.0% respectively. In November, the land transaction area basically maintained stability year-on-year and increased month on month; Compared with the same period last year, the new construction data decreased, the completion data changed the decline in October, increased year-on-year, and increased significantly month on month. Recently, there has been a marginal easing trend in the policy of the real estate industry, and under the policy requirements of “moderately ahead of infrastructure investment”, the new construction data may improve. By the end of the year, the completion stage of real estate enterprises is expected to drive the completion data to continue to improve.
Key recommendation
Focus on the infrastructure sector, Shenzhen Capol International&Associatesco.Ltd(002949)
Main risks of rating
Risk tip: manufacturing investment slowed down, the promotion of prefabricated buildings was less than expected, and macro liquidity tightened.
