Over the past period, liquidity issues in the Hong Kong stock market have continued to blow the screen. On the one hand, the number of companies trading $0 per day on the Hong Kong Stock Exchange has expanded; on the other hand, the daily turnover of the Hong Kong Stock Exchange has dropped to HK$100 billion. Is the superposition of the two signals the “exhaustion” of liquidity in the Hong Kong stock market, or is it the end of the market bottoming out? In response to this, many professionals believe that the Hong Kong stock market is already in the process of a wave of rebound.

Finding certainty in the current uncertain market in the Hong Kong stock market is one of the things we need to think about the most when investing. The key is to sort out the short-term status of the macroeconomy and long-term trends.

Judging from the current short-term situation, the Hong Kong stock market will experience a small boom in listing in December. As of December 20, 8 new shares have entered the Hong Kong capital market, and currently there are still 11 companies that have passed hearings and are yet to be listed. It is expected that soon they will be listed on the main board of the Hong Kong Stock Exchange, and the Hong Kong stock market will soon welcome the “carnival” of the year before.

Judging from long-term trends, the launch of FINI (Hong Kong Stock Exchange IPO Settlement Platform) shortens the time from pricing to listing to “T+2”. Investors can trade new shares faster, reducing the capital required to subscribe to new shares and the potential risk of fluctuations in IPO prices.

Focusing on a longer term dimension, achieving the transformation and upgrading of economic momentum is the key to the high-quality development of China's economy. Emerging industries and technology industries represented by new energy sources will inevitably increase capital expenditure. New infrastructure represented by various new power plants, power systems, energy-saving and emission reduction buildings and other related projects is the driving force for the long-term growth of the construction industry.

From this point of view, if an enterprise can maintain the basic market of traditional infrastructure and develop growth points for new infrastructure, it will be more certain in its future development compared to its peers.

1. The opportunity for the 10 trillion circuit

Shanxi Installation is an engineering service provider mainly engaged in professional industrial engineering and professional supporting projects. In a 10 trillion race track such as engineering services, there is no shortage of opportunities for growth.

Generally speaking, professional supporting projects are mainly related to urban roads, electricity supply, water supply, and traditional infrastructure projects such as highways, railways, and bridges. As China's urbanization process continues to deepen, the market size of professional supporting projects continues to rise.

According to Frost & Sullivan data, from 2017 to 2022, the total output value of professional supporting projects in China increased from 5193.2 billion yuan to 8865.6 billion yuan, with a compound annual growth rate of 11.3%.

In addition, professional industrial engineering mainly includes the construction of projects related to new energy, petrochemicals, fine chemicals, etc. Benefiting from China's strategy to increase storage and production, oil and gas development has been an important driving force for the development of China's energy industry in recent years. Capital expenditure has continued to expand, driving the continuous growth of related industrial chains.

According to Frost & Sullivan's statistics, from 2017 to 2022, China's professional industrial engineering market in terms of gross output grew steadily, with a compound annual growth rate of about 8.7%.

Under the guidance of the dual carbon goal, new energy is undoubtedly the core growth driving force for the energy industry in the future. As the energy structure changes and the share of new energy continues to rise, the core growth driving force of professional industrial engineering will shift from capital expenditure in the traditional energy industry to infrastructure construction in the new energy industry.

According to Sullivan's forecast, the compound growth rate of China's new energy industry will reach 9.7% from 2023 to 2027. During the same period, the total output value of China's professional industrial engineering will continue to grow at a compound annual growth rate of 8% to reach 739.27 billion yuan.

A broad and definitive track opens up room for growth for the companies in it. However, it is undeniable that in addition to being large, the market for professional industrial engineering and professional supporting engineering is also highly fragmented. More than 20,000 players are fiercely competing here. In terms of revenue in 2022, the top ten players accounted for a total market share of 1.6%, and Shanxi Installation ranked in the top ten.

As supply-side reforms continue to be implemented, leading enterprises are more likely to enjoy the long-term dividends of increased industry concentration, and in turn receive additional definitive support based on the overall growth of the industry.

2. Multiple advantages establish a leading position in the industry

Judging from past performance, steady growth is the best explanation for the company's development in recent years.

From 2020 to 2022, the company's revenue increased from 10.149 billion yuan to 12.849 billion yuan, with a compound annual growth rate of 12.50%; during the same period, the company's gross profit increased from 1,428 billion yuan to 1,842 billion yuan, with a compound annual growth rate of 13.57 billion yuan.

However, this is still based on a slight decline in performance in 2022, but considering the impact of public health events on the construction process, short-term performance fluctuations are not surprising. More importantly, standing at the threshold of the current economic recovery, what we should pay more attention to is whether it can occupy the leading position in the industry for a long time and continue to enjoy the dividends of industry growth.

Focusing on a more microscopic level, the author believes that for an engineering service provider to occupy a leading position in the industry for a long time, it must gain advantages in at least the following areas.

The first is qualification. As we all know, the exhibition industry of construction companies is based on having a qualification permit, and the qualifications required for different types of projects and processes often vary. Decades of installation in Shanxi have given it a rich reserve of qualifications.

According to reports, Shanxi Installation is the first engineering service provider in the country to have “double special double” qualifications for municipal public use, petrochemical engineering construction general contracting, municipal administration, and chemical, petrochemical and pharmaceutical industries, and this is the highest qualification of a general contractor for construction projects.

More than that, following the concept of “the main business creates scale and diversified profits,” Shanxi has installed a four-in-one engineering service system of “design consulting, investment and construction, construction, operation and maintenance”. The advantages of the entire industry chain layout are conducive to its continuous acquisition of high-quality project licenses.

Furthermore, technology research and development has long been the key for enterprises to stand out from fierce competition, and it is also an important component of the core competitiveness of Shanxi's installation.

As of the first half of 2023, Shanxi Installation has more than 750 valid patents in China, including more than 60 important invention patents, more than 700 utility model patents and 1 design patent.

More importantly, the installation in Shanxi has grasped the major trend of macroeconomic transformation and laid out in the field of new infrastructure at an early stage.

For example, in terms of new energy, the new energy business installed in Shanxi covers more than 20 provinces across the country. Relying on rich project experience, it has formed a complete new energy business management, development, investment and financing model. In 2022, Shanxi installed 46 wind power and photovoltaic power generation projects, with a total installed capacity exceeding 3GW.

At the same time, the implementation of high-quality projects in the direction of new energy has strengthened the company's brand image. Among them, the Taigu heating project installed in Shanxi, as the largest single heating project in Asia, is currently the industry benchmark project that complies with energy saving and emission reduction policy guidelines. The heating energy consumption is only one-third of the energy consumption of ordinary cogeneration, and it also won the 19th China Civil Engineering Zhan Tianyou Award in 2022.

III. Concluding Remarks

Taken together, the certainty of traditional infrastructure and the growth of new infrastructure have combined to provide engineering service providers represented by Shanxi Installation with a “guaranteed bottom, flexible” development blueprint.