The Zhitong Finance app learned that Huaan Securities released a research report saying that the pre-renovation negotiation cycle is long, and the construction materials sector is a short-term thematic opportunity. Referring to current project progress, the first-level land preparation process usually takes 4-5 years, and the second-level construction process takes 2-3 years. Renovation projects that do not involve demolition are relatively fast; therefore, early planning companies benefit more, and demand for construction and building materials is lagging behind.

From the perspective of market capitalization and revenue, priority is given to flexible targets: it is recommended to focus on planning companies with experience in urban renewal projects such as urban village renovation [Huayang International] (002949.SZ), etc.; building materials beneficiary companies [Seagull Housing] (002084.SZ), etc.; construction enterprises [China Construction] (601668.SH), etc., which have undertaken urban village projects in very large regions and have clearly increased related orders.

▍ The main views of Huaan Securities are as follows:

1. Policy support:

In 2023, the top-level design for urban village renovation was implemented. It is clear that urban village renovation will be carried out in 19 megacities, and promoted through a combination of three models: demolition and construction, rehabilitation and upgrading, and demolition. Since then, relevant policies have been introduced intensively, and urban village reform has been mentioned separately many times, and the strategy has been highly improved.

There are three effects of the urban village renovation this time: (1) relay shed reform and old reform to create municipal construction demand; (2) cooperate with “rent and sale” and combine it with affordable housing to solve housing problems for young people in megacities; (3) stabilize expectations in the new housing market, but the actual results may be weaker than shed reform.

2. Driving scale:

According to estimates of the resident population and per capita housing area, the urban village area of the 19 megacities is estimated to be about 925 million square meters, and the estimated area of urban villages nationwide is about 2,076 billion square meters. The urban village renovation cycle is generally 7-8 years. Excluding the demolition part, it is estimated that urban village renovation is expected to drive trillions of dollars of investment every year.

3. Funders:

The implementation cycle for urban village renovation is longer, the nature of land is complex, and renovation projects focus on inclusive public welfare, so funding sources need to match various types. In July of this year, the National Standing Committee deliberated and approved the “Guiding Opinions on Actively and Steadily Promoting Urban Village Renovation in Megacities”, stating that it is necessary to adhere to the main responsibility of the city people's government, raise funds for the renovation through multiple channels, and encourage and support the participation of civil construction capital.

On the one hand, financial resources are still indispensable, mainly in the form of special debt, low-interest loans, and government-led city funds. On the other hand, the more social capital, the better, and participation in the form of non-standard financing, commercial loans, etc.

4. Beneficiaries:

(1) Planning and design: Enterprises with experience in urban village renovation are expected to benefit first; (2) Construction: Demolition, reconstruction and transformation, civil engineering enterprises deeply involved in the local area are expected to benefit; (3) Construction materials: New construction projects are expected to drive traditional building materials products such as cement and glass, and renovation projects are expected to drive consumer building materials demand; (4) Supporting links: the construction process involves testing, supervision and other services, and related enterprises are expected to benefit.

Risk warning:

(1) The risk that urban village renovation does not advance as expected; (2) the risk that real estate exceeds expectations and declines; (3) the risk that land collection and storage will be difficult; (4) the risk that capital will fall short of expectations.