The Zhitong Finance App learned that Guosheng Securities released a research report saying that under the policy, the overall market rebounds, high-quality growth stocks are expected to show higher elasticity. The focus is on three major directions: 1) Infrastructure and housing construction chain: benefiting from the recent introduction and implementation of a package of steady growth policies by the government. In addition, incremental fiscal policies may also be introduced in the future. The financial aspects of the Q4 infrastructure and real estate industry are expected to improve marginally to accelerate the implementation of physical workload, and is optimistic about marginal improvements in the fundamentals of infrastructure and housing construction companies in the fourth quarter, driving the acceleration of capital structure repairs. Manufacture of leading Honglu steel structures (002541. SZ), Huayang International (002949.SZ), a leading housing construction design leader in South China, and Rena Intelligent (301129.SZ), a leading energy-saving heating supplier.

2) High-quality racetrack growth stocks: High-quality racetracks have broad room for long-term growth. If subsequent macroeconomic demand improves, marginal repair flexibility is greater, the focus is on recommending Shanghai Port (605598.SH), leading construction equipment leasing leader Huatie Emergency (603300.SH), private network EPCOS leader Suwen Electric (300982.SZ), and fine chemical modular leader Libert (605167.SH). 3) Construction engineering testing: Downstream is mainly real estate and infrastructure. The introduction of steady growth policies is expected to drive leading profits to have greater upward resilience. At the same time, the promotion of housing pension pilots is expected to drive demand for stock housing testing. The focus is on recommending Shenzhen Ruijie (300977.SZ) and Jianke Co., Ltd. (301115.SZ).

Guosheng Securities's main views are as follows:

What are the current low-ranking high-quality growth stocks for construction?

The overall market rebounded strongly, and high-quality growth stocks are expected to show greater elasticity in the future. Since September 24, the overall market has experienced a strong rebound driven by policy. The cumulative increase in the Shanghai Composite Index/Shenzhen Stock Index/GEM Index/Shenwan Construction has reached 21.4%/30.3%/42.1%/24.7% over the five trading days. Looking ahead, the bank believes that high-quality growth stocks, which previously had a deep decline, are expected to show greater elasticity: 1) From a fundamental perspective (EPS): The long-term trend of high-quality growth stocks is improving, but since most of them are private enterprises and their scale is small, they have been greatly impacted by the weak macroeconomic demand situation before. The current “package policy” continues to gain strength. If macroeconomic demand warms up in the future, the marginal improvement in the fundamentals of high-quality growth stocks is expected to become even more obvious. 2) From a valuation perspective (PE): Previously, institutions continued to reduce their holdings of small to medium market capitalization stocks, leading to a sharp drop in high-quality growth stocks. Currently, valuations and institutional holdings are at historically low levels. Currently, market turnover is rapidly expanding, liquidity has improved markedly, and market risk appetite has been drastically fixed under policy. Subsequent incremental capital is expected to select targets with large declines, low institutional shareholding ratios, and relatively small market capitalization. Therefore, high-quality growth stocks are expected to show greater valuation flexibility.

Direction 1: Infrastructure and housing construction chain - Honglu Steel, Huayang International, Rena Intelligence. Local finance and real estate owners' capital were tight in the first three quarters of this year, macroeconomic demand was weak, and the general performance growth rate and cash flow of infrastructure and housing construction chain companies were under pressure. With the recent introduction and implementation of a package of steady growth policies by the government, incremental fiscal policies may also be introduced in the future, which is expected to promote a marginal improvement in capital in the infrastructure and real estate industries in the fourth quarter and accelerate the implementation of physical workload. Optimistic about the reversal of the fundamental expectations of leading high-quality companies in the infrastructure and housing construction chain in the fourth quarter, driving the acceleration of valuation repair. Key recommendations:

Honglu Steel Structure: There is plenty of room to improve the penetration rate of steel structures, and the large-scale benefits of leading manufacturing companies continue to show. According to the China Steel Structure Association plan, China's target is that the country's steel structure production will account for 15%/25% of crude steel production in 2025/2035 (China's about 10% in 2022, and the United States/Japan and South Korea respectively about 50%/40% respectively). Steel structure buildings account for 15%/40% of the newly built construction area respectively. There is plenty of room for improvement in steel structure penetration rate, and the industry is expected to continue to grow in the medium to long term, and Honglu Steel is expected to benefit the core of steel structure manufacturing. The company's mid-term core growth drivers are clear: 1) The company's steel structure production capacity has reached 5 million tons (scheduled to reach 5.2 million tons by the end of 2024), and the capacity utilization rate was about 90% last year. As the company's production line continues to mature and intelligently upgrade production lines, the subsequent capacity utilization rate is expected to reach more than 140%, continuously releasing growth space; 2) Relying on leading scale effects, the company continues to reduce procurement costs through mining and strategic cooperation with upstream steel mills, and build an information-based control system to optimize production scheduling and transportation to reduce production costs and continuously strengthen profitability; 3) Continue to promote Intelligent manufacturing (BIM management+robot) consolidates the advantages of cost, quality and efficiency, and steadily increases market share. The company's net profit for 2024-2026 is estimated to be 0.91/1.02/1.13 billion yuan, YoY -23%/+12%/+11%, and the current stock price (as of 9/30) corresponds to a PE of 12/10/9 times.

Huayang International: A leading housing construction design leader in South China, with abundant capital on hand and excellent cash flow performance. The company is a leader in high-quality housing construction design. Its business is mainly in South China regions such as Guangzhou and Shenzhen. Currently, core cities such as Shenzhen and Guangzhou have drastically relaxed real estate regulation measures, which is expected to boost real estate sales in the Guangshen region and improve the financial situation of real estate agents. The company has been deeply involved in urban renewal for 16 years and is deeply involved in formulating housing security policies and design standards in Shenzhen, and is expected to benefit from the acceleration of urban reform and guaranteed housing construction in Shenzhen. As of the end of 2024H1, the company had 0.77 billion in cash, with a current market value of only 2.3 billion yuan (as of 9/30), with an adequate margin of safety; the company's operating cash flow maintained a net inflow of 226%/237%/178% respectively in 2021-2023, benefiting from business structure optimization (the share of EPC orders in 2023 has dropped from 41% in 2020 to 2%), and the cash flow is expected to continue to be excellent and the dividend rate is high. Net profit due to mother for 2024-2026 is estimated to be 0.16/0.19/0.22 billion yuan, respectively, up 0%/18%/16% year over year, and PE corresponding to the current stock price (as of 9/30) is 14/12/10 times.

Rena Intelligence: The energy saving requirements for heating under “dual carbon” are clear, and the leading one-stop service advantage is expected to continue to show. Benefiting from the continuous advancement of “dual carbon” development goals, China's demand for energy-saving and intelligent transformation of heating facilities is clear. In March of this year, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which proposes to promote heating metering and continuous upgrading of heating facilities and equipment. Demand for energy-saving heating is expected to be released at an accelerated pace. It is estimated that the heating energy saving stock needs to be transformed more than 1 kilometer, and the industry space is broad. The company is one of the few domestic enterprises that can provide a one-stop service for heating energy saving. It provides STORM AI overall solutions with automation (OT) +informatization (IT) +intelligence (AI) core technology (providing an EPC+EMC service model). Relying on the outstanding advantages of a full set of software and hardware, it can reduce heat consumption and carbon emissions by 10-30% and reduce electricity consumption by 30-50%. It is expected that it will continue to benefit from the release of demand in the heating energy saving industry in the future. Furthermore, in the silicon carbide (SiC) industry, Hefei Gaona Semiconductor Technology, a wholly-owned subsidiary of the company, focuses on developing and producing third-generation semiconductor material silicon carbide crystals. Currently, there are 10 8-inch resistance furnaces and induction furnaces. It is currently actively promoting small-scale mass production, which is expected to create new momentum for growth in the future.

Direction 2: High quality track growth stocks - Shanghai Port, Huatie Emergency, Suwen Electric, Libert. The long-term trend of high-quality growth stocks is improving. If macroeconomic demand warms up in the future, the marginal improvement in fundamentals is expected to become more obvious. We can focus on leading stocks related to industry segments such as the construction equipment leasing industry, power engineering industry, overseas foundation engineering, and chemical modular construction. The main recommendations are:

Shanghai Port: A leading provider of infrastructure soft soil foundation treatment, benefiting from high infrastructure investment in Southeast Asia and the Middle East. 1) Leading soft soil foundation treatment technology, excellent profitability and operating quality: The company's technical advantages in the soft soil foundation field are outstanding. The company's gross margin remained above 30% in 2020-2023, and the net profit margin reached 13.6% in 2023, clearly superior to peers, with excellent profitability; as of the end of 2024H1, the company's cash on hand (including transactional financial assets) was 0.8 billion, with an interest-bearing debt ratio of only 0.63%. The net present ratio for 2021-2023 was 127%/85%/77%, respectively. 2) Strong demand for infrastructure in Southeast Asia and the Middle East has driven a high increase in the company's orders: the company is deeply involved in the Southeast Asian (mainly Indonesian) market, while continuing to expand to the Middle East, Latin America and other regions. Currently, many countries in Southeast Asia have issued infrastructure investment plans, and the average infrastructure investment from 2021 to 2030 is expected to exceed 1.4 percent; Saudi Vision 2030 will launch several large-scale projects such as Neom New Town, which is expected to drive an increase in demand for foundation treatment. 2024H1 signed a new order of 1.2 billion, a year-on-year increase of 78%. Among them, overseas orders increased sharply by 92%. 3) The domestic Dalian Airport project is expected to contribute to the increase in performance: In May, the company announced that the consortium won the 0.39 billion bid for the new Dalian Airport foundation treatment project. The foundation treatment portion of the project is about 2.5 billion. If orders for new segments land in the future, it is expected to support a high increase in orders throughout the year. According to the company's 2023 restricted stock incentive plan, net profit without return to mother will grow at a year-on-year rate of 32%/26%/17% respectively in 2023-2025, with a compound growth rate of 25% over three years. The company's net profit from 2024-2026 is estimated to be 0.22/0.29/0.37 billion, an increase of 27%/30%/27%. The current stock price (as of 9/30) corresponding PE is 23/18/14 times, respectively.

China Railway Emergency Response: There is plenty of room for domestic high speed aircraft expansion, and it is expected that Hainan's state-owned assets will continue to support growth after entering the market. 1) In terms of aerial machinery business: Compared with traditional tools such as scaffolding and gondolas, it has been widely used by overseas developed countries. In 2022, the total US market holding volume was 0.77 million units, the per capita ownership rate was 23.12 units/10,000 people, and the construction industry had a value added coverage rate of 11.08 units/100 million yuan; in 2023, China had more than 0.6 million units, and the per capita holding capacity was about 4 units/10,000 people. The construction industry has a value-added coverage rate of about 7 units/100 million yuan, and the domestic aircraft market has broad scope for expansion. As one of the leading aircraft leasing leaders in China (market share of about 20% in 2023), the company has continued to rapidly increase its aerial work platform holdings in recent years, continuously improve its management system, and build a scale advantage. It is expected that future performance will continue to be steadily released. 2) In terms of multiple categories, the company is currently actively expanding into the field of forklifts, and is expected to continue to create multi-category equipment synergy advantages; at the same time, the company is also actively expanding the intelligent computing business. The new computing power service contract has reached 2.018 billion yuan, of which equipment has been delivered over 0.6 billion yuan, continuing to create new growth momentum. Hainan's state-owned capital joined the company this year, and Hainan Holdings' multiple businesses are expected to collaborate with the company, and the state-owned background is also expected to help the company reduce debt financing costs (estimated to reduce 1.2 pct). The company's net profit for 2024-2026 is estimated to be 0.84/1.05/1.31 billion yuan, respectively, up 4%/25%/25%. The PE corresponding to the current stock price (as of 9/30) is 13/10/8 times.

Suwen Electric Energy: Distribution grid transformation and upgrading continues to prosper, and private EPCOS leaders are steadily expanding. With the accelerated construction of new power systems in China and the rapid development of distributed energy, microgrids, electric vehicles and energy storage industries, terminal electricity loads are showing a new trend of rapid growth, change and diversification, and demand for distribution grid transformation and upgrading continues to rise. The “14th Five-Year Plan” distribution grid construction investment of the State Grid Plan exceeds 1.2 trillion yuan, accounting for more than 60% of the total investment in grid construction. Subsequent distribution grid construction is expected to continue to receive resource incentives. Among them, since the reform of the power system in 2015, the degree of marketization of distribution grids has continued to increase. With flexible mechanisms and differentiated services, private enterprises have continued to enjoy the dividends of the reform, and their market share has continued to increase. At the same time, in the context of “dual carbon,” industrial and commercial electricity costs tend to rise, and the demand for intelligent electricity services that can help customers improve electricity reliability, reduce electricity costs, and promote energy saving and emission reduction is expected to continue to increase. The company is a private EPCOS leader in distribution networks. While based on traditional power supply and distribution business, the company actively promotes upstream and downstream business development in the industrial chain (power electronic equipment, optical storage and charging, intelligent electricity use, etc.), as well as overseas business expansion, and continues to build a new engine for long-term growth. The company's 2024H1 monetary capital (including transactional financial assets) is 1.57 billion, and the current market value is only about 4.2 billion yuan. Net profit due to mother for 2024-2026 is estimated to be 0.25/0.3/0.36 billion yuan respectively, up 219%/20%/20% year-on-year, and the PE corresponding to the current stock price (as of 9/30) is 17/14/12 times.

Libert: A leading modularization leader in fine chemicals, speeding up the layout across fields and industrial chains. The compound growth rate of performance is expected to reach 37% in the next 3 years. Starting in 2022, global chemical giants such as BASF and INVISTA will gradually move their production bases to China to improve supply chain stability. The company's key customers have invested more than 150 billion yuan in China, driving the company to sign orders to maintain a high level of prosperity. In recent years, based on the advantages of fine chemical modularity, the company has accelerated the expansion of its business layout, horizontally expanded new materials, oil and gas energy, mining and other fields, vertically extended downstream engineering maintenance and process package operations, and actively developed high-quality domestic customers. The company plans to issue bonds to expand production capacity in module manufacturing. Compared with the EPC business, the gross margin of module manufacturing is significantly superior, and the increase in business share is expected to drive up overall profit margins. Currently, the company has plenty of orders in hand. It has disclosed about 1.7 billion in major new orders this year. As of the end of 24H1, the company's cash on hand was 0.77 billion, the interest-bearing debt ratio was only 6.6%, and the asset quality was excellent; the net present ratio for 2021-2023 was 138%/306%/184%, respectively, and the cash flow performance was excellent. The company's net profit for 2024-2026 is estimated to be 0.26/0.36/0.49 billion yuan, respectively, up 35%/30%/30%. The 2023-2026 CAGR will reach 37%, and the current stock price (as of 9/30) will correspond to PE 16/12/9 times.

Direction 3: Construction engineering inspection - Shenzhen Ruijie and Jianke Co., Ltd. The downstream construction engineering inspection is mainly real estate and infrastructure. Affected by the downturn in new real estate construction and tight infrastructure finance, industry demand continues to shrink, and the leading revenue side is clearly under pressure. At the same time, under the asset-heavy business model, equipment depreciation and personnel expenses on the cost side are relatively rigid, leading to a sharp decline in profit margins. Currently, real estate optimization policies are being introduced one after another, and fiscal policies are about to gain strength. Downstream demand is expected to recover steadily, which is expected to drive leading profits to have greater upward resilience. Furthermore, the Ministry of Housing and Construction recently proposed the establishment of three systems: housing pensions, regular medical examinations, and safety insurance, which are expected to boost demand for stock housing testing and further open up space for medium- to long-term growth for leading companies. Key recommendations:

Shenzhen Ruijie: Third-party engineering evaluation pioneer, customer base structure optimization accelerates transformation. The company is one of the first domestic market players to participate in the third-party engineering quality and safety risk assessment industry. In 2022, the company was affected by the decline in real estate, and revenue performance was under pressure. Starting in 2023, the company actively adjusted its business structure, reduced the share of real estate customers, and developed industrial, insurance and other customers: 1) In the direction of insurance evaluation, it actively served the IDI (Engineering Quality Defect Insurance) evaluation market, and established business cooperation with financial insurance leaders such as Human Insurance, Ping An, Pacific, and China Life Insurance, etc., with significant first-mover advantages. 2) The industrial direction is to develop high-quality customers such as Tencent, China Mobile, and Huawei to provide project construction evaluation and management services, and explore new application scenarios such as hotel evaluation and property operation and maintenance based on the “service+platform+data” model. 2024H1 industry/insurance revenue also increased by 190%/26%, and the share of real estate revenue fell from a high of 90% to 47%. The customer base structure was clearly optimized, which is expected to drive an improvement in profit quality. In addition, the Ministry of Housing and Construction recently stated that it is studying the establishment of three systems for housing pensions, regular medical examinations, and safety insurance. The company has been deeply involved in the engineering evaluation industry for more than 10 years, and has accumulated rich actual project measurements and risk assessment data. It has obvious advantages in the field of existing construction risk assessment. At the same time, it can rely on the advantages of existing insurance customers to enter the stock housing insurance evaluation market, which is expected to focus on the pilot implementation of various housing pension systems.

Jianke Co., Ltd.: A leading inspection leader in construction engineering and building materials, continues to promote cross-sector and cross-regional layout, which is expected to benefit from the implementation of a regular housing inspection policy. 1) Relying on mergers and acquisitions to actively expand the business layout: The company is a regional leader in construction materials testing, accounting for about 70% in Jiangsu Province in 2024H1. In recent years, the company has gradually expanded beyond the province through mergers and acquisitions, building five regional centers in Sichuan, Chongqing, Zhejiang, Lianghu, Yunnan and Guangdong. At the same time, it is actively expanding into fields outside of construction, such as food, automobile testing, consumer goods and electronic and electrical inspection, etc., and continues to expand its cross-regional and cross-field layout. 2) The housing pension pilot is progressing at an accelerated pace, and the company is expected to benefit from the increase in demand for stock housing testing: Recently, the Ministry of Housing and Construction stated that it is studying the establishment of three systems for housing pensions, regular medical examinations and safety insurance. The company has earlier established a strategic plan for the transformation from new buildings to existing construction services. In recent years, it has focused on developing quality trust and quality improvement services for testing, reinforcing, remodeling, and repairing the safety, suitability and durability of existing buildings. It also participated in research on housing pension policy topics, and has strong influence in the field of existing housing operations. Room measurement The increase in inspection demand is expected to support the company's main construction engineering inspection business to maintain steady growth.

Investment advice

The overall market has rebounded strongly. Subsequent high-quality growth stocks are expected to show greater elasticity, focusing on three major directions: 1) Infrastructure and housing construction chain: benefiting from the recent introduction and implementation of a package of steady growth policies by the government, which may also introduce incremental fiscal policies in the future. The capital of the Q4 infrastructure and real estate industry is expected to improve marginally, drive faster implementation of physical workload, and be optimistic about infrastructure and housing construction growth companies in the fourth quarter, driving accelerated valuation repair. The focus is on recommending leading steel structure manufacturers Honglu Steel (PE 12X) and South China Housing Design and Construction. Touhuayang International (PE 14X), energy saving heating Leading company Rena Intelligence. 2) High-quality racetrack growth stocks: There is broad room for long-term growth of high-quality racetracks. If subsequent macroeconomic demand improves, marginal repair flexibility is greater, the focus is on recommending Shanghai Port (PE 23X), leading construction equipment leasing leader Huatie Emergency (PE 13X), private network EPCOS leader Suwen Electric (PE 17X), and fine modular chemical leader Libert (PE 16X). 3) Construction engineering testing: Downstream is mainly real estate and infrastructure. The introduction of steady growth policies is expected to drive leading profits to have greater upward resilience. At the same time, the promotion of housing pension pilots is expected to drive demand for stock housing testing. The focus is on recommending Shenzhen Ruijie and Jianke Co., Ltd.

Risk warning

Risks that policy introduction and implementation fall short of expectations, risk of demand recovery falling short of expectations, risk of companies' order acceptance and execution progress falling short of expectations, risk of measurement errors, etc.