This report is read as follows:

We believe that the company relies on its parent company, China Construction, and has a unique moat. Environmental protection drives the concrete industry from decentralization to concentration, and the company has the advantage of green production and strict environmental protection.

Main points of investment:

The "overweight" rating is given for the first time. We expect the company's EPS in 2019-21 to be 0.44,0.49,0.55 yuan, which will be increased by 85%, 10% and 12% respectively, and will be given 2.0X PB in 2019, corresponding to the target price of 13.7 yuan.

Environmental protection drives the concrete industry from decentralization to concentration. The market size of the concrete industry is more than one trillion yuan, but the concentration is scattered. By the end of 2018, the number of concrete enterprises in China is more than 10, 000, but CR10 (2017) is less than 10%. We believe that environmental protection has become the focus of the concrete industry from decentralization to centralization. on the one hand, environmental protection policies force small non-environmental protection enterprises to close down, and on the other hand, environmental protection pushes up the cost and price of raw materials such as cement, sand and gravel, resulting in the compression of profits in the concrete industry. At the same time, the strength of concrete station has increased obviously in recent years.

The back is built in the middle, and the moat is wide. The parent company, China Construction, is the company's largest customer, but the company accounts for only 10% of the concrete supply of China Construction. We judge that with the layout of the company's production capacity and the expansion of its operation in the new area, there is still significant room for tapping the potential of China Construction's internal business. On the other hand, the management and control of accounts receivable of the company is significantly better than that of the same industry. at the same time, the company creates an online concrete trading e-commerce platform, and cash concrete management forms an effective closed loop.

Green production has an advantage under the stricter environmental protection. Adhering to the concept of green production, the company invested more than 2200 million yuan in 2018, adding and renovating 186 sets of environmental protection facilities and equipment. A total of 16 production units have been awarded the "National ready-mixed concrete Green demonstration Factory", and 7 production units have passed the three-star green building materials evaluation mark certification. We believe that under the stricter environmental protection, the company will be able to operate and expand as a green production enterprise.

Risk hint: uncertainty of new business expansion and continued tightening of national real estate regulation and control