Expressway is the most important operating asset held by construction enterprises. At present, four REITs have been issued. With a large investment scale and relatively stable operating charges, expressway is one of the most important bottom assets of infrastructure REITs and the largest operating asset category held by listed construction enterprises. At present, four projects of Ping An Guangzhou Guanghe REITs / Zhejiang merchants Shanghai Hangzhou Ningbo REITs / Huaxia Yuexiu Expressway REITs / Huaxia CCCC Expressway REITs have been successfully issued, raising a total of 25 billion yuan, accounting for 55% of the total funds raised by the issued REITs, which is the largest subdivision field. REITs of expressways belong to franchise projects, and the overall cash distribution rate is significantly higher than that of property rights projects such as parks. After listing, the overall increase is low, and now it has a certain cost performance.
Taking the expressway project as an example, we analyze the impact and reconstruction of REITs on construction enterprises, which are mainly reflected in the following four aspects:
1) optimize the balance sheet and improve the refinancing ability. Although the comprehensive financing cost of Expressway REITs is 6% – 7.5%, which is higher than that of debt financing by about 4%, the issuance of REITs can revitalize the stock assets. On the one hand, it can enjoy the appreciation of book assets and increase equity. On the other hand, if some loans are repaid, it can effectively reduce the scale of interest bearing liabilities and optimize the overall balance sheet.
2) the value of high-quality stock operating assets is expected to be revalued. The premium rates of the issued scale of Ping An Guangzhou Guanghe / Zheshang Shanghai Hangzhou Ningbo / Huaxia Yuexiu Expressway / Huaxia CCCC Expressway relative to the book value of underlying assets are 68% / 61% / 104% / 12% respectively, and the average premium rate is 61%. The good performance of the secondary market after listing is expected to further catalyze the revaluation of assets in hand.
3) accelerate capital turnover and improve reinvestment capacity. The national development and Reform Commission disclosed that by the end of 2021, China’s 11 infrastructure REITs had sold 36.4 billion yuan of funds, with a net recovery of about 16 billion yuan, which could drive the total investment of new projects to exceed 190 billion yuan. According to the calculation proportion of the national development and Reform Commission, Ping An Guangzhou Guanghe / Zheshang Shanghai Hangzhou Ningbo / Huaxia Yuexiu Expressway / Huaxia China Communications Expressway revitalized the funds of RMB 1.8/15/9 billion respectively, totaling RMB 7.3 billion, which is expected to drive new projects of RMB 71.2 billion. Assuming that one third of the national toll highways meet the conditions, REITs can be issued. It is expected to revitalize the fund of 1.1 trillion and drive the investment of 13.6 trillion in new projects.
4) reconstruct the business model and build an infrastructure asset management platform. The closed-loop business model of construction enterprises from “investment construction” to “investment construction withdrawal investment” will significantly improve the efficiency of capital turnover, improve the level of roe, open the limitation of assets and liabilities and embark on the road of sustainable development. Enterprises with professional advantages in investment and management in a certain field can build infrastructure asset management platform with the help of REITs, and fully enlarge the value of infrastructure assets through investment, construction, acquisition of potential new projects, operation cultivation, transaction and other ways.
China Communications Construction Company Limited(601800) China Communications Construction Company Limited(601800) is the largest expressway construction and investor in China. By the end of the 21st century, 27 expressways had been put into operation, with a cumulative investment of 185.1 billion yuan and a revenue of 7.7 billion yuan. Huaxia CCCC REITs has been successfully issued. It is expected that 8 REITs projects can be issued in the short term, with a total investment of 75.1 billion yuan. We estimate that the REITs of Huaxia CCCC / short-term issuable projects / all highway projects can reduce the company’s asset liability ratio by 0.2/1.8/4.6 PCT and revitalize the capital by 9 / 19.3/48 billion yuan. If calculated according to 20% of the capital, it can drive the investment in new projects by 4.5/96/240 billion yuan. In addition, relying on the company’s professional highway investment and operation capacity, the value of the project in hand is expected to be revalued, and there is great potential to build an infrastructure asset management platform with the help of REITs.
Investment suggestions: we focus on: 1) at present, we have more operating assets and can issue REITs. For construction enterprises with strong professional ability to invest and operate in a certain field, we mainly recommend China Communications Construction Company Limited(601800) , and pay attention to Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) , Sichuan Road & Bridge Co.Ltd(600039) . 2) Reconstruction of business model with REITs, improvement of capital turnover efficiency, improvement of roe and breakthrough of balance sheet limit: recommend China State Construction Engineering Corporation Limited(601668) , China Railway Group Limited(601390) , China Railway Construction Corporation Limited(601186) , etc.
Risk warning: REITs market development is less than expected risk, listed companies promote REITs less than expected risk, REITs operation risk, etc.
