The Zhitong Finance App learned that Guoxin Securities released a research report stating that according to the 2023 annual reports of some construction companies, the overall construction revenue growth rate continued to slow in 2023, the pressure on turnover and depreciation calculation increased, and cash flow continued to improve but sustainability was difficult to determine. Relatively speaking, central construction enterprises have an advantage in undertaking major projects, and financing costs are lower than the industry average, and it is expected that orders and performance will continue to grow steadily; as overseas orders continue to pick up, it is recommended to focus on the performance of leading international engineering companies.
In addition, industrial construction is less affected by real estate and local government debt, and is also an investment direction supported by current policies. As the inventory cycle approaches, the steel structure and professional engineering sectors in the industrial chain are expected to undergo valuation repairs. In particular, some major fab factory projects are expected to be implemented within the year. It is recommended to focus on clean plant construction opportunities.
Key recommendations: China Railway (601390.SH), China Communications Construction (601800.SH), Taiji Industrial (600667.SH), China Haicheng (002116.SZ), Sinoma International (). 600970.SH
The main views of Guoxin Securities are as follows:
Infrastructure investment started strongly, and construction companies' annual report performance was divided
From January to February 2024, fixed asset investment (excluding rural households) was +4.2%; general infrastructure investment was +8.95%; narrow infrastructure investment was +6.3%; road investment was +8.3%; and railway investment was +27%. According to the 2023 annual reports of some construction companies, the overall construction revenue growth rate continued to slow in 2023, turnover and depreciation pressure increased, and the current balance of payments declined as a whole. Cash flow continued to improve, but sustainability was difficult to determine.
Green buildings: equipment updates drive the release of technical reform orders, green buildings ushered in policy catalysis
On March 13, the State Council officially issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”. Promoting equipment renewal and transformation in key industries is expected to speed up the release of industrial engineering technology improvement orders. Cement and metallurgical projects with high energy consumption and high emissions, mainly existing technical improvement projects, are expected to benefit; green construction consulting services and photovoltaic curtain walls are expected to benefit by promoting the renewal and transformation of construction and municipal infrastructure.
Low-altitude economy: The low-altitude economy was included in the government work report, and there are opportunities for supporting infrastructure
The 2024 government work report proposed “actively building new growth engines such as biomantry, commercial aerospace, and the low-altitude economy.” The rapid development of the low-altitude economy requires infrastructure support, including adaptive transformation of existing airports, construction of new temporary take-off and landing sites, and construction of digital dispatch management systems. Currently, there are 3 design institutes under the China Civil Aviation Airport Construction Group (CCCC Group holds 49% of the shares) in the civil aviation industry. Among the listed companies, Huashe Group has Class B qualifications; the listed companies with first-level qualifications for professional contracting of airport platforms mainly include China Railway, China Railway Construction, China Energy Construction, China Metallurgical, and Shaanxi Construction.
Clean room: Huali JiKangqiao Phase II project launched, focusing on high-tech plant construction opportunities
Eleven Technology, a wholly-owned subsidiary of Taiji Industrial, and Shanghai Sijian, a wholly-owned subsidiary of Shanghai Construction Engineering, formed a consortium to win the bid for the “Kangqiao Phase II Integrated Circuit Production Line Plant and Supporting Facilities Construction Project”, which won the bid price of RMB 9.88 billion. Subsequent professional tenders may involve many listed companies and have had a great impact on them, which is worth focusing on.
Risk warning: macroeconomic downside risk; risk that policy implementation falls short of expectations; risk that approval progress of major projects falls short of expectations.