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下游需求回暖,达丰设备(2153.HK)或将进入新一轮上升期

Downstream demand is picking up, and Dafeng Equipment (2153.HK) may enter a new round of growth

Gelonghui Finance ·  12/01/2023 08:26

Since 2023, under the main tone of economic recovery, policy packages have been introduced one after another, bringing lasting impetus to the performance recovery of all walks of life. However, due to the influence of objective economic laws, the pace at which policy influence is transmitted to various industries is sequential, and the macro background of “strong expectations and weak reality” cannot be ignored.

As the cornerstone of the national economy, the infrastructure, engineering and other industries are bound to play an important role in this stage of lasting economic recovery. Against the backdrop of the industry not completely recovering, the restoration of the performance of many outstanding enterprises in the industrial chain will also be delayed, yet their medium- to long-term growth momentum is getting stronger and stronger.

On November 29, Dafeng Equipment announced its latest semi-annual results. By the end of September 2023, the Group had achieved revenue of 359 million yuan in the past six months, a slight decline compared to the same period last year. However, considering the delays in the progress of some projects, the impact on this performance is also reasonable. At the same time, net loss narrowed by 51.2% year over year, in line with market expectations.

Looking at it from a long-term perspective, the worst is probably over. Further analysis of deep industrial operation trends through data representation, several important hidden repair logics have jointly provided strong support for the subsequent performance restoration of Dafeng equipment.

1. The basic market trend is positive

As a leading tower crane service provider in the industry, Dafeng Equipment's performance is closely related to infrastructure prosperity. In an environment where consumption is sluggish and exports are under pressure, infrastructure is undoubtedly a key helper in ensuring steady economic growth, so the policy side is making frequent efforts to boost infrastructure prosperity.

The financing side is particularly obvious. In the first three quarters, the country issued a total of about 7.08 trillion yuan of local bonds, an increase of 11.50% over the previous year. Of these, 3.46 trillion yuan of special bonds were added, accounting for 90.8% of the new special debt limit for the whole year. Benefiting from this, infrastructure construction investment increased 8.6% year over year in the first three quarters of 2023.

Looking ahead to the whole year, the positive trend in infrastructure is also extremely certain. On October 24, additional treasury bonds and budget adjustments were approved. It is expected that in Q4 this year, 1 trillion yuan of treasury bonds will be issued to increase infrastructure investment, mainly to support post-disaster recovery and reconstruction and to make up for shortfalls in disaster prevention, mitigation, and relief. After financial pressure is eased, it is anticipated that more infrastructure projects will be launched.

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(Data source: National Bureau of Statistics)

As the core machinery for infrastructure and engineering projects, demand for tower cranes will naturally increase as infrastructure projects are subsequently implemented. With its leading product strength, nationwide service network, and stable customer base, Dafeng Equipment is expected to become the core beneficiary of this round of rising industry prosperity.

On the other hand, tower crane has also been widely used in the real estate sector. Although the overall prosperity of the real estate industry has declined in recent years, there have been many policy combinations since this year, and the hidden structural opportunities are worth paying attention to.

On November 17 of this year, the People's Bank of China, the General Administration of Financial Supervision, and the China Securities Regulatory Commission jointly held a symposium on financial institutions. The conference clearly proposed that “it is necessary to actively serve the construction of the “three major projects” such as affordable housing and accelerate supply-side reforms in real estate finance.

In order to solve residents' basic housing problems, there is no time to delay the construction of affordable housing. Especially for very large and megacities with a net inflow of population, promoting the supply of guaranteed housing and ensuring the quality of guaranteed housing is the key to resolving the housing conflict at this stage. During the 14th Five-Year Plan period, the country plans to raise nearly 9 million yuan for affordable rental housing.

Large-scale guaranteed housing construction has directly led to an increase in demand for tower cranes, and such construction projects often have government support. Stable funding sources and clear construction plans are conducive to improving the certainty of the company's performance growth. Furthermore, by participating in large-scale government projects, Dafeng Equipment can expand its commercial layout by entering new markets, thereby enhancing brand awareness and building good market reputation.

More importantly, in order to improve the efficiency and quality of construction production, reduce labor costs, and reduce carbon emissions and negative impact on the environment, prefabricated buildings have become the transformation direction of the future construction industry. In 2025, prefabricated buildings will account for 30% of new buildings.

However, the structural components of prefabricated buildings place higher demands on the carrying capacity, operating accuracy, and stability of tower cranes. Suppliers need to carry out corresponding technological innovations to improve control systems and hoisting mechanisms, etc., and this is undoubtedly an opportunity for innovation-driven tower crane suppliers such as Dafeng Equipment to increase their market share.

Overall, the recovery of downstream infrastructure and the emergence of structural opportunities in real estate have laid a solid foundation for the tower crane industry. According to the Forward-looking Industry Research Institute, the compound annual growth rate (CAGR) of the production and sales volume of China's tower crane industry in 2023-2028 will be 9.5%. In 2028, the output of China's tower crane industry will reach 155,000 units, sales volume will reach 147,000 units, and the rental market size will reach 255.6 billion yuan.

2. Seize incremental opportunities in Hong Kong and Macao to break growth boundaries with new energy

It is worth mentioning that in the context of a slow recovery in the basic market this year, the Hong Kong and Macao business contributed a lot to the company's transition through the cycle.

As one of the most important national strategies in the new era, the coordinated regional development strategy is an important part of China's modernization and resolution of the problem of unbalanced regional development. Infrastructure construction, as the cornerstone for advancing a series of subsequent tasks, is a top priority. As a key development area cultivated by the country, the Guangdong-Hong Kong-Macao Greater Bay Area has been intensively launched with key infrastructure projects, bringing more development opportunities to tower crane companies capable of going overseas.

For example, according to the Hong Kong government's plan, the northern metropolitan area of Hong Kong will build about 330,000 public housing units in the next ten years and 30,000 “simple public housing” in the next five years. Furthermore, according to the Macau Special Administrative Region's economic diversification plan, the expansion of Macau International Airport is being carried out intensively. Construction of the reclamation project will begin in 2024. It is expected that the entire project will be completed in 2029. At that time, the capacity of Macau Airport will increase to 13 million passengers per year.

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Tat Fung Equipment realized the hidden opportunities in Hong Kong and Macau very early on, and set up a subsidiary for businesses in South China, including the Greater Bay Area (Guangdong Dafeng) and a subsidiary for Hong Kong business. In June of this year, the company's first equipment was delivered to Hong Kong, and Macau has already entered more than 20 units. It is expected that more than 10 units of equipment will be shipped to Hong Kong in early 2024.

It is reported that Dafeng Equipment's revenue in the Greater Bay Area will rise to 25% of the Group's overall revenue within 2 years, drawing a second growth curve for the Group. Looking forward to the future, being based on the mainland and setting up Hong Kong and Macao will help launch a brand. It can lay a good foundation for entering more Asian markets. Going overseas to seek new growth points can iron out cycle fluctuations through cycle misalignment between different markets, and further enhance the certainty of the company's growth.

If downstream infrastructure and real estate have built a strong basic market for Dafeng equipment, then the rapid development of clean energy has brought more flexibility to the company.

The double carbon target has had a profound impact on the transformation of all walks of life, most directly in the energy industry. Taking nuclear power as an example, it has excellent characteristics such as low cost, low pollution, and high stability, and is the key to achieving diversified energy supply systems in China and the world at large.

According to the “China Nuclear Energy Development Report 2023”, it is predicted that by 2030, the installed scale of nuclear power in operation in China is expected to become number one in the world. By 2035, China's nuclear power generation will account for about 10% of total power generation, doubling compared to 4.98% in 2022.

However, special projects such as nuclear power plants often require customization, high precision, and high safety. The qualification requirements for tower crane suppliers are extremely high, and the project construction cycle is long, and the use and maintenance of tower cranes is also high. This provides tower crane suppliers with opportunities for long-term service and maintenance contracts.

Dafeng Equipment realized the opportunities it contained very early on and set up a special clean energy division to win at least 3 nuclear power projects every year.

III. Concluding Remarks

Overall, as the leading supplier of tower cranes in the industry, Dafeng Equipment is bound to become one of the core beneficiaries of the recovery of infrastructure and real estate, the promotion of prefabricated buildings, the acceleration of development in the Greater Bay Area, and the increase in the penetration rate of clean energy. Performance restoration is becoming more and more certain.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
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