The Zhitong Finance App learned that Minsheng Securities released a research report saying, “First, the landing signal before the holiday is significant, speeding up the process after the holiday, which is beneficial to the land market and the construction commencement side in the long term. Funds are allocated to expropriation compensation, demolition, resettlement, and land concessions, giving priority to the land market, land development, and real estate construction. In 2023, the residential real estate opening investment amount is 8.4 trillion yuan. If more than 1 trillion dollars of capital is landed within the year, the corresponding driving ratio is 10% or more. Second, back-end varieties also benefit. In particular, if guaranteed housing and housing are not newly built, they will drive demand for building materials more quickly (equivalent to the completion chain). Whether on the commencement side or the completion side, the bank believes that once the capital is landed, it will speed up implementation to the fundamentals of building materials, and “following the ground” is expected to gain strength.

Incident 1: Up to now, 24 provincial and municipal government officials have announced the implementation of special loans for urban village renovation, involving Guangzhou, Chengdu, Beijing, Xi'an, Hefei, Nanning, Zhejiang, Liaoning, Zhengzhou, Wuhan, Jinan, etc. The funds are mainly used for upfront expenses for urban village renovation, levy compensation, housing construction, and related supporting infrastructure construction. Incident 2: Urban village renovation may expand, from 35 to 52 cities. Incident 3: In January 2024, CDB, import and export banks, and agricultural banks issued net additional collateral supplementary loans (PSL) of 150 billion yuan. There was a net increase in PSL for 2 consecutive months, totaling 500 billion dollars.

Minsheng Securities's views are as follows:

Starting from the details, we should pay more attention to the funding situation. The higher the proportion of funds available, the faster the pace of progress may be.

As of February 2, according to public information, Guangzhou and Chengdu were the first and second respectively in terms of total approval amounts, but the higher the rate of approval, the faster progress in theory. Regions with relatively high initial funding include Wuhan (31%), Ningbo (18%), Fuzhou (9%), Jinan (7.7%), Kunming (6%), and Zhengzhou (5%), with most others at 1-2%.

For example, the first batch of withdrawals in Wuhan amounted to 12.44 billion yuan, accounting for 31% of the total contract amount of 40.1 billion yuan. The first batch of 19 projects averaged 650 million yuan per project. The Shandong branch of agricultural distribution has granted a total credit approval amount of 58.85 billion yuan to 21 projects in Jinan. The first batch of special loans to be invested was 4.53 billion yuan, that is, the proportion of the first batch of capital landed was 7.7%, with an average of 220 million yuan per project. Among them, the Wanglu and Beixincheng Zhongcun renovation projects in Tianqiao District of Jinan received 1.1 billion yuan of support. The Beixincheng project has completed about 500,000 square meters of non-residential demolition. It is planned to start residential demolition in March, and efforts will be made to start housing construction in the first half of the year, involving 1,270 households and 4,328 residents. The bank does not know the actual living area, so refer to ① 36 square meters of area per capita, ② the average price of 12,700 square meters per square meter in Tianqiao District. Judging by the amount of capital, it will require at least 2 billion yuan, but in reality, it is also necessary to consider that the levy compensation method is a combination of housing, housing tickets, and cash. After becoming clean land, the cost of construction and security on the original land is an issue that developers need to consider. Land concession prices for clean land generally cover land acquisition costs (including the cost of housing resettlement) +land leveling costs+tri/five/seven-pass and one-square fee+special loan interest+process costs+a certain rate of return.

Starting from the details, it is possible to conclude that there is little funding available and insufficient support is probably a continuation of the old project.

For example, the urban reform project in the Daze district of Changsha received 10 million loan support from the CDB Hunan branch in December, which did not account for a high share of the total amount of 7.544 billion yuan. However, according to a press release from the Hunan Housing and Construction Department, the project specifically refers to urban reform in Xitang and Nantang villages, and the December 2022 news mentioned that “villagers in Nantang Village have basically completed the demolition.”

Furthermore, according to the December 2023 Changsha Daily, Dazawa Lake is the overall area. Since 2020, 1,243 households have been demolished and nearly 10,000 mu of land have been freed up, accounting for about one-third of the total area. As a result, the funding gap for old projects may itself be small. Coincidentally, the housing project related to the renovation of urban villages in the Baolong area of Wuhan — the housing construction phase II plan — will sprint to its peak at the end of 2023.

Starting from the details, PSL and policy banks exert leverage effects.

PSL added a total of 3.65 trillion dollars from 2014-2019. Interest rates in 2023 were 2.4%, and interest rates were 2.85% for most of 2015-2022. PSL's low interest rate and long period of time are in line with the characteristics of the use of capital for urban village projects. The recent continuous net increase of 350 billion and 150 billion PSL in December and January is considered a strong support from central funding. Based on the average multiplier effect of PSL during the shed reform period of 2.7 (total investment in shed reform/total amount added to PSL), the current cumulative PSL increase of 500 billion dollars is expected to leverage the scale of about 1.35 trillion dollars. At the same time, it is necessary to pay attention to whether PSL will continue to be distributed. In addition, the hidden debt issue will also receive close attention during the funding process. The key is to calculate the yield of the project, avoid financial revenue as a source of special revenue for the project, and focus on the use of PSL not only for urban reform, but also for guaranteed housing.

There are two main aspects of the significance of building materials:

First, the landing signal before the holiday is significant. The process is accelerated after the holiday, which is beneficial to the land market and the construction commencement side in the long term. Funds are allocated to expropriation compensation, demolition, resettlement, and land concessions, and priority is given to benefiting the land market, land development, and real estate construction. In 2023, the residential real estate opening investment amount is 8.4 trillion yuan. If more than 1 trillion dollars of capital is landed within the year, the corresponding driving ratio is 10% or more. Second, back-end varieties also benefit. In particular, if guaranteed housing and housing are not newly built, they will drive demand for building materials more quickly (equivalent to the completion chain). Whether on the construction side or the completion side, the bank believes that once the capital is implemented, it will accelerate implementation to the fundamentals of building materials. “Follow the ground” is expected to gain strength. It will continue to recommend Beixin Building Materials (000786.SZ), Conch Cement (600585.SH), Huaxin Cement (600801.SH), Weixing New Materials (002372.SZ), Rabbit (002043.SZ), Dongfang Yuhong (002271.SZ), etc.

Risk warning: The pace of disbursement of the second batch of funds fell short of expectations; weather changes affected the pace of construction.