The Zhitong Finance App learned that CICC released a research report saying that recently, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”. The bank believes that by speeding up equipment upgrades in the construction and municipal infrastructure sector, the municipal sector is expected to benefit from consuming building materials. At the same time, pipeline renovation and renewal are expected to form a strong support for municipal pipeline demand. The continuation of urban renewal and pipe gallery construction policies since the 14th Five-Year Plan is expected to clearly hedge the impact of the decline in completion on pipeline demand. Furthermore, the renewal of old production capacity for building materials, chemicals, and steel is expected to benefit refractory materials and professional engineering enterprises.

CICC reviews are as follows:

Accelerating equipment upgrades in the construction and municipal infrastructure sector is expected to benefit from consumer building materials in the municipal sector.

The “Plan” proposes to “focus on residential elevators, water supply, heating, gas supply, sewage treatment, sanitation, urban lifeline engineering, security, etc., and promote energy-saving renovation of existing buildings by focusing on exterior wall insulation, doors and windows, heating devices, etc.; continue to implement the renewal and transformation of aging pipelines such as gas” in line with previous policy ideas for old reform and urban renewal, and put forward more targeted building renovation requirements. The bank anticipates municipal consumption of building materials (pipelines, waterproofing, paint, hardware, insulation) and energy-saving doors Building materials related to windows (energy-saving doors and deep-processed glass companies) Targets such as Dongfang Yuhong (002271.SZ), Jianlang Hardware (002791.SZ), Kibing Group (601636.SH), and Xinyi Glass (00868) are expected to benefit.

Pipeline renovation and renewal is expected to provide strong support for municipal pipeline demand.

A relevant person in charge of the Ministry of Housing and Construction said earlier that in the future, China will upgrade more than 100,000 kilometers of underground pipelines every year. The bank estimates that by the end of 2022, the total length of national water supply and drainage plus municipal pipelines was over 450 kilometers. The average annual growth rate of urban pipelines in 2019-21 was 240,000 kilometers. Affected by the decline in real estate in 2022, it was only 170,000 kilometers. The annual 100,000 kilometer pipeline renovation plan is expected to clearly hedge the impact of the decline in completion on pipeline demand as a continuation of the “14th Five-Year Plan” policy. Municipal pipe leaders China Liansu (02128), Gongyuan Co., Ltd. (002641.SZ), Cangzhou Pearl (002108.SZ)), and Weixing New Materials (002372.SZ) are expected to benefit.

The renewal of old production capacity for building materials, chemicals, and steel is expected to benefit refractory materials and professional engineering enterprises.

The “Action Plan” suggests that by 2027, the energy efficiency of major energy equipment in key industries will basically reach energy efficiency levels, and the steel, non-ferrous, petrochemical, chemical, building materials and other industries are all included in key industries. Combined with the high-energy consumption industry's own dual-carbon control requirements and digital intelligence self-requirements, the implementation of the “Plan” is expected to further promote equipment technology reform and upgrading in these industries. Corresponding special engineering and refractory companies are expected to benefit. Luyang Energy Saving (002088.SZ), Sinoma International (600970.SH), and China Steel International (000928.SZ) are expected to benefit.

Industrial plants have become an important demand scenario for housing construction, and equipment updates are expected to drive plant-related construction needs.

According to industry feedback, housing construction has gradually transitioned from being mainly residential to diversified demand for commercial construction, public construction, factories, etc., and demand for industrial plants has continued to boom in recent years. For example, China Construction revealed that 1H23 industrial plants account for 26% of new building construction orders (+73% over the same period last year). The bank believes that equipment updates and durable consumer goods updates are expected to drive the continuation of the boom in plant construction, and that downstream construction materials companies with mainly industrial plants, such as Honglu Steel (002541.SZ), Huatie Emergency (603300.SH), and Hongxin Construction and Development (09930), are expected to benefit.

Risk warning: The implementation of the policy fell short of expectations, and the decline in real estate demand exceeded expectations.