The progress of housing construction has been accelerated, and the integrated housing market has mainly increased the dynamic force.
In the first half of the year, the total income increased by 2.7% over the same period last year to 203.0 billion yuan, of which the core construction project contracting service, which had a total income of 98.1%, increased by 30% to 199.1 billion yuan. Benefiting from the urbanization of the second and third line cities and the expansion of the market beyond the Beijing-Tianjin-Hebei region, the income from contracting services for housing construction in the first half of the year increased by about 1.33% to 141.2 billion yuan over the same period last year, while that of other construction projects increased by 16.7% to 2.12 billion yuan over the same period last year, offsetting the decline of 27.5% compared with the same period last year. The decline in contracting services for infrastructure construction in the first half of the year was mainly due to the slowness of government projects under the shadow of inadequate funding.
The number of housing construction contract projects has increased in the near future.
By the end of June 2019, the total number of new contracts for collective construction projects had increased by 4.8% year-on-year to 396.9 billion yuan, of which the total number of new contracts for housing construction had increased by 1.43% to 291.4 billion yuan, which was the only one of the three major construction projects that registered an increase. On the contrary, the total number of new contracts for base construction and other construction projects decreased by 16.8% and 10.6% respectively.
Of the new housing construction contracts, residential housing accounted for 63.6% and public construction accounted for 25.4% in the first six months of 2019, compared with a slight increase of 0.6% at the end of last year. It is worth noting that the year-on-year increase in the total number of new contracts for housing construction accelerated from 11.5% last year to 14.3% in the first half of the year, while the total number of handheld contracts decreased to 17.2% from 19.9% at the end of last year, reflecting the improvement in the progress of housing projects in the first half of the year. Hope to speed up the progress of private housing projects, ii) actively open up areas outside Beijing, Tianjin and Hebei in Yunnan, South China and China. In the case of the increase in the number of projects and the rapid increase in the speed of completion, the contract for housing construction has further increased in the past.
In the same period, there has been a decrease in the number of infrastructure and other construction projects undertaken by the Consortium, and at the same time, the progress of the project has been improved, resulting in a further increase in the holding of the contract. By the end of June 2019, the total number of infrastructure and other construction projects increased by 25.8% and 73.9% respectively in the same period last year. The progress of infrastructure construction and other construction projects is mainly due to the release of the progress of government contracts. According to the data of the State Statistics Bureau, local governments issued bonds in the second quarter. In the same period, the growth rate of fixed assets for road transport, investment and public facilities management also slowed down in the second quarter, and the latter was at the level of rapid growth in the whole quarter.
Increase in the profit rate of the change of contract
The gross profit margin of construction project contracting in the first half of the year increased by 0.5 percentage points to 5.2% from 4.7% in the same period last year. On the one hand, it benefited from the high gross profit margin in the Beijing-Tianjin-Hebei region due to the high gross profit margin of housing construction in Yunnan, South China and the medium-sized areas of China. At the same time, after the purchase of domestic production, forestry construction contracts were contracted into professional construction projects in the same period. The high gross profit level pulled up the gross profit margin of construction projects by 1.2 percentage points compared with the same period last year.
Thanks to the change in the income structure, the gross profit margin of the first half of the collection is lower than our forecast, and the proportion of market contracts at the same time is also dominated by housing construction, coupled with the gradual increase in the proportion of Beijing, Tianjin and Hebei, which is conducive to raising the level of gross profit in the future.
Fund management offsets business expenses
Due to the impact of the release of government projects, the speed of collection fund recovery has been affected. In the past, it was impossible to make a corresponding adjustment in the short term by using the mode of management fund weekly of payables receivable. Therefore, the short-term increase in funding is a preparation for investment funds. However, due to the acceleration of real estate construction projects with rapid return of funds, and the ability of ii) to consolidate through long-term fund management measures, we think that even though the current fund management methods are not flexible, they are even more serious during the downturn, but for the above reasons, the current investment in funds is relatively short-term and does not cause significant adverse effects. The market is still equipped to deal with the gloomy environment in the future.
The first key project of Xiongan New area
In October 2019, the construction of the ZT2 bid section of the main project of the Beijing-Hebei-Tianjin-Shijiazhuang Expressway Section from Beijing Xinjichang to Dezhou Expressway, with a contract premium of 1.19 billion yuan and a construction period of 19 months. The project, with a total length of 14.4 km, is located in the district of Langfang City, Hebei Province. construction will start on November 16, 2019 and is expected to be completed in 2021. Compared with the environmental control and forestry projects in the past, this project is the largest project currently obtained in the Xiongan New area, while it is the counterpart of the projects such as China Infrastructure Construction and China Communications Construction.
The listing of A shares will help to replenish the capital and reaffirm the level of "admission".
In July 2019, the proposal issued no more than 25% of the total share capital after the development of A shares, equivalent to no more than 590 million shares. According to the latest investment arrangements, the Marketplace intends to collect 3.96 billion yuan of people's funds for investment in PPP projects, BOT projects and other fund-raising projects. Using this gold price as a reference, the net income of A shares is 6.74 yuan per share, compared with a price-to-earnings ratio of 10.7x in 2018, and the latest closing price of H shares is a 36.5% premium. Compared with the same companies listed in China and Hong Kong, the valuation of these enterprises'A shares ranges from 7.4x to 9.3x 2018, and their H shares are valued at 21.3% and 84.4% higher, assuming a valuation premium of 6.74 yuan per share. The valuation premium to H shares is at a reasonable level. Assuming that the stock market can meet the investment demand, the collection will benefit from I) the financial strength caused by the investment of equity financing funds, and ease the current shortage of financing funds, and the valuation of ii) H shares will be raised once and for all under the development of A shares.
In view of the fact that the A-share development bank is able to improve the current financial resources, and we believe that with the support of temporary contracts, we will be able to maintain the growth of the market in the future. Therefore, we reiterate that the target price is HK $7.52 per share, which is equivalent to the forward price-to-earnings ratio of 7.7x/6.9x/6.1x in 2019 / 2020 / 2021.