Zhitong Financial APP learned that Soochow Securities released a research report saying that the infrastructure real estate chain continues to bottom, 23Q2 revenue growth has not yet established an accelerated trend year-on-year, profitability bottom shock. The bank believes that the idea of stock selection should also shift from the stock game to incremental value, and the positive layout can improve the performance, for example, the Belt and Road Initiative direction of the export chain, some consumer building materials and household appliances in consumption, the clean room project of the investment chain, and so on. Recommended targets: Miao Exhibition (300795.SZ), China Industrial International (002051.SZ), Dongfang Yuhong (002271.SZ), Shenghui Integration (603163.SH), etc.

The main points of Soochow Securities are as follows:

Events:The report of A-share listed companies in infrastructure real estate chain has been basically disclosed in 2023. The bank selected 136 A-share listed companies as samples for analysis, including 81 construction companies and 55 building materials companies. In the fine molecular industry, the building materials industry includes 9 cement sub-industries, 9 glass fiber sub-industries, 26 decoration building materials sub-industries and 11 other material sub-industries. the construction industry includes 26 design consulting sub-industries, 13 decoration sub-industries, 15 infrastructure housing construction sub-industries, 4 international engineering sub-industries and 23 professional engineering sub-industries.

The prosperity of the industrial chain continues to build a bottom.

Infrastructure real estate chain boom continues to bottom, 23Q2 revenue growth has not yet established an accelerated trend, profitability bottom shock. On the one hand, the total demand for infrastructure real estate continues to be under pressure, and on the other hand, the downstream cash flow is still tight, which brings implicit constraints to the income growth of listed companies, but thanks to factors such as the decline in the price of bulk raw fuels upstream to ease cost pressure, the overall profit performance is better than income. The slowdown in 23Q2's overall income growth over the same period last year was mainly dragged down by the slowdown in the construction industry, with a slight improvement in the building materials industry, and better cash flow control in decoration, decoration, building materials and infrastructure housing sub-industries with slower year-on-year growth in income. From the perspective of ROE (TTM), only ROE (TTM) of infrastructure housing construction, international engineering and professional engineering 23Q2 is above the hub of the past three years, while most other sub-industries are still at a low level. The gross profit margin and net profit rate of cement, glass fiber and decoration building materials have been improved to a certain extent.

Income statement: the overall growth rate of income is slowing down and profitability is low.

(1) the overall income growth rate of 23Q2 infrastructure real estate chain has slowed down compared with the same period last year, mainly due to the slowdown in the construction industry, and the building materials industry has slightly improved. Among them, the accelerated sub-industries include: design consulting, decoration (recovery of the post-epidemic development industry, and steady growth in support of infrastructure design demand), glass and fiberglass (improvement of glass boom), decoration and building materials (release of stock home decoration demand after the epidemic and total demand support on completion). The decelerating sub-sectors mainly include cement (weak physical demand leads to a decline in the price centre), international engineering (the base has improved over the same period, and new orders have not yet been concentrated), and professional engineering (weak demand for manufacturing capital expenditure).

(2) the gross profit margin of 23Q2 infrastructure real estate chain improved slightly compared with the previous year, and the year-on-year decline narrowed slightly, mainly driven by the building materials industry. Among them, the sub-industries with improved gross profit margin compared with the same period last year are mainly cement (the price of the industry rebounded in the peak season and the base decreased in the same period), glass fiber (profit repair of the glass industry), and decoration building materials (down at the cost end). The gross profit margins of other sub-industries are basically stable compared with the same period last year.

(3) the low level of ROE (TTM) of 23Q2 infrastructure real estate chain is stable, in which the construction industry has slightly upward 0.5pct compared with the same period last year, while the building materials industry has declined 10.9pct compared with the same period last year, and the overall profitability needs to be repaired. Only ROE (TTM) of infrastructure construction, international engineering and professional engineering is located above the hub in the past three years, while the prosperity of most other sub-industries is still at a low level, among which the ROE (TTM) of design consulting, decoration, international engineering and professional engineering sub-industries shows an improvement trend.

Cash flow and balance sheet: Q2 operating cash flow performance differentiation, balance sheet still needs to be fully repaired.

(1) the operating cash flow of 23Q2 infrastructure real estate chain is basically stable. Under the background that the total demand for infrastructure real estate is weak and the credit risk of real estate still exists, the income-to-cash ratio index reflects the tradeoff between income growth and collection by listed companies. the sub-industries with the increase in cash-to-cash ratio compared with the same period last year are mainly decoration, decoration and building materials, and infrastructure housing construction, reflecting the strengthening of control and control over payback by listed companies, but the year-on-year growth rate of income is below the center of the past three years. Year-on-year decline is mainly cement (listed companies to expand business, such as mixed business), international engineering, professional engineering (income to maintain rapid growth).

(2) in terms of asset-liability ratio of infrastructure real estate chain up to 23Q2, design consulting, cement, decoration, other materials, infrastructure housing construction, professional engineering sub-industries have increased to a certain extent compared with the same period last year, while decoration building materials and international engineering sub-industries have slightly decreased.

(3) the capital construction real estate chain as of 23Q2 accounts receivable and bill turnover days (TTM) still has a slight increase, it is expected that the downstream municipal and real estate capital pressure has not been alleviated, enterprise stock receivables recovery is still under pressure, coupled with the impact of income scale continued growth. Among them, the sub-industries with obvious year-on-year increase in accounts receivable and bill turnover days (TTM) are mainly cement, glass fiber, other materials, etc., but due to the overall elongation of accounts payable (TTM), the net operating cycle (TTM) is relatively stable. The accounts receivable and bill turnover days (TTM) of infrastructure construction and international projects are well controlled, considering the high proportion of central state-owned enterprises in the sample companies, reflecting the optimization of balance sheet quality under the guidance of the new round of state-owned enterprise reform.

Investment advice:The medium-term bottom is still repeated, on the one hand, the progress of policy landing, on the other hand, the pace of interest rate increases in the US dollar. At present, standing in front of the new cycle, the bank believes that the idea of stock selection should also shift from the stock game to incremental value, and the positive layout can improve the performance direction, for example, the Belt and Road Initiative direction of the export chain, some consumer building materials and household appliances in consumption, the clean room project of the investment chain and so on.

1. In the short and medium term, after the end of the interest rate hike cycle in Europe and the United States in the second half of the year, global demand may enter a new upward period. The industrialization of Belt and Road Initiative and RCEP in the medium to long term is expected to promote their urbanization and become the largest source of incremental global demand over the next decade. This year marks the 10th anniversary of Belt and Road Initiative's proposal, and the third "Belt and Road Initiative" Summit Forum will be held this year. Recently, the BRICS countries have announced expansion, BRICS cooperation has opened a new starting point, and more cooperation and policy support are expected to be introduced in the future. Overseas engineering business is expected to benefit, and a number of international engineering companies are expected to increase overseas orders in the first half of the year, and the follow-up is expected to be gradually realized to the performance level. Two dimensions of stock selection, Belt and Road Initiative and RCEP regional income in the proportion of total income and the ability of localization, recommend Miao Convention and Exhibition, Sinopec International, China Jiajian, and pay attention to Sinosteel International, Northern International and so on.

2. Under the effect of strong policies, the downward spiral of domestic real estate will be curbed. The bank expects property sales to stabilize in the fourth quarter at the earliest, and investment and main credit to stabilize next year. For the real estate chain, the suppression of demand may last for a year, but the improvement in the supply side has begun to reflect, some of the better-than-expected tracks are worth paying attention to, such as tiles, doors and windows, and so on. There are also some outstanding enterprises that are ahead and leveraged are also worthy of attention. Recommend Beixin Building Materials, Dongpeng Holdings, Mona Lisa, Jianlang hardware, Oriental Yuhong, Weixing New Materials, Qibin Group, it is recommended to pay attention to Jiangshan European School, Forest Eagle window Industry.

3. In the non-real estate chain, long-term optimistic about industrial upgrading or energy conservation and carbon reduction investment demand. At present, the semiconductor localization process is accelerated, clean room project supply continues to be tight, recommend Shenghui integration, re-upgrade technology, it is recommended to pay attention to Baicheng shares.

Risk Tips:The risk that the real estate credit risk is out of control and the real estate relaxation policy is not as expected.