The largest private builder in Beijing-Tianjin-Hebei. Established in the 1950s, Hebei Construction is a leading non-state-owned construction group in China, mainly engaged in engineering contracting for housing and infrastructure projects. According to Frost & Sullivan, based on 2016 revenue, Hebei Construction is the largest non-state-owned construction contracting company in the Beijing-Tianjin-Hebei region and the second largest non-state-owned construction contracting company in China. Construction project contracting is the company's main business. The construction business in Hebei is mainly divided into (1) construction project contracting business and (2) other business (real estate development, property management and other businesses). Among them, the construction project contracting business was the company's core business, accounting for 97.7% of revenue in 2016. The company's construction project contracting business can also be subdivided into (i) housing, (ii) infrastructure, (iii) professional and other construction engineering contracts. The housing construction business is the traditional dominant business of Hebei Construction. It accounted for 61.2% of construction business revenue in 2016. However, since housing construction contract amounts are generally small and profit margins are low (1H17 gross profit margin: 4.0%), the company has strategically undertaken more infrastructure projects with high profit levels in recent years (1H17 gross profit margin: 5.5%). The infrastructure business accounted for 41.3% of the amount of new contracts signed in the first half of 2017 (FY16:27.1%, FY15:15.6%). Seize the opportunities of Beijing-Tianjin-Hebei integration and Xiong'an New Area. According to Frost & Sullivan, based on 2016 revenue, Hebei Construction has a market share of 5.1% in Hebei Province. We believe that the Beijing-Tianjin-Hebei integration will bring a large number of construction projects, especially infrastructure projects, to the region. In 2017, Hebei Province plans to invest approximately RMB 100 billion to upgrade its transportation infrastructure and to build 30 general aviation airports over the next few years. In April 2017, the CPC Central Committee and the State Council decided to establish Xiong'an New Area to promote the integrated development of Beijing-Tianjin-Hebei Province. According to Frost & Sullivan, fixed asset investment in Xiong'an New Area will exceed 400 billion yuan in the next 5 years. As the largest private builder in Beijing-Tianjin-Hebei Province, we believe that Hebei Construction will benefit from the construction of Xiong'an New Area. The first coverage gives a buying rating. Benefiting from Beijing-Tianjin-Hebei integration and the construction of Xiong'an New Area, we forecast that the company's revenue in 2017-2019 will reach 43.6 billion yuan, 50.2 billion yuan and 58.7 billion yuan; net profit will be 105 million, 1.29 billion yuan and 1.56 billion yuan, equivalent to EPS 0.61 yuan, 0.73 yuan and 0.89 yuan. We selected 5 construction-related companies for peer comparison, and their average FY18 dynamic price-earnings ratio was 6.5x. In view of the compounded increase in the company's net profit of 26.6% over the next three years, according to the 6.5x FY18 dynamic price-earnings ratio, we gave Hebei Construction a target of HK$5.58, covering the purchase rating for the first time.