The outlook is becoming more positive due to the impact of the novel coronavirus epidemic that occurred in China in the first quarter of this year. Construction and completion of Hebei construction projects were blocked for part of the first half of this year, causing its FY20E performance for the first half of the year to temporarily regress. Since the epidemic has been brought under control since the second quarter of this year, the Group's project progress has returned to normal. Coupled with the strong recovery of its main regional market, Hebei Province, since the second quarter, we expect Group FY20E's performance to regain growth momentum in the second half of this year. The number of uncompleted contracts on the Group's hands has reached 100 billion, which means that its future revenue and profit growth trajectory has some visibility. It is expected that Hebei Construction will drive growth by expanding into new regional markets and entering business areas it has never entered. It announced in October that it signed a strategic cooperation framework agreement with the Inner Mongolia Autonomous Region People's Government to cooperate in developing traditional and new infrastructure in the region. Moreover, the new infrastructure will open the door for the Group to a wide space for growth. The group won more than 20 airport-related projects in the first ten months of this year.

The increase in ratings and target prices was delayed due to construction being blocked by the pandemic. Group FY20E's revenue and profit for the first half of the year decreased by 29.2% and nearly 55.0%, respectively, compared to the same period last year. The data shows that construction investment and activities in Hebei have expanded since the 2020 quarter. As a result, we estimate that the Group's revenue and profit are expected to resume growth in the second half of 2020. As a result, we have raised Group's FY20E profit forecast by 24.9% to nearly 770 million yuan. It is estimated that a large part of the Group's projects originally scheduled to be recorded in FY20E will be pushed to FY21F, so we raised the FY21E profit forecast by 71.6% to nearly RMB 1.05 billion. We forecast the Group's FY19EA-FY22F revenue and profit compound growth rates of 21.6% and 22.2% respectively.

We think fourteen. Keywords such as five infrastructure construction industry plans, Xiong'an New Area, and new infrastructure will become investment themes and stock price catalysts for Hebei Construction. The Group's current FY22E price-earnings ratio/FY20E-FY22F profit compound growth ratio (PEG) is only 0.8 times. We set the 12-month target price of Hebei Construction at HK$30.0, or 0.9 times FY22F PEG. As the Group's revenue and profit growth prospects are becoming more positive, we have upgraded Hebei Construction's investment rating from neutral to buying. At the end of June 2020, the Group's leverage ratio, or net debt-to-equity ratio, was only 5.6%, and its balance sheet position was very stable.

A large number of items to be credited to the accounts were delayed due to the pandemic, and some of the original project launch plans were cancelled. As a result, the number of new projects received by the Group in the first quarter of FY20E fell 47.6% from the same period last year to 20.80 billion yuan. However, the amount of uncompleted contracts at the end of FY20E Group still increased 6.4% from the end of FY19A to 104.41 billion yuan. It is estimated that this was due to delays in the completion of a small part of its projects. The number of uncompleted contracts on the Group's hands means that its future revenue and profit trajectory has some visibility and certainty. Since the second quarter of this year, data on infrastructure and construction activities, new projects, site space and investment in Hebei have all shown an upward trend. It is expected that the government will also increase infrastructure investment to boost the economy. This will benefit the Group in obtaining new projects. It is expected that the number of new projects obtained by the Group in the second half of the year will increase compared to the first half of the year and up to FY19A throughout the year. Through the cooperation platform with the local government of Inner Mongolia, it is expected that the group will receive a large number of local projects.

Major market growth accelerated the construction base in Hebei Province. The total output value of the construction industry in Hebei Province contracted 16.3% year-on-year to 73.04 billion yuan in the first quarter of this year, but by the next quarter, the output value of the industry increased by nearly 1.0% year-on-year to 242.57 billion yuan, far better than the 0.5% year-on-year contraction of the total construction industry in Hebei Province in the 2019 annual quarter. The amount of new contracts signed by construction companies in the region in the first quarter and the next quarter of this year also increased by 3.5% and 9.6%, respectively, over the same period last year, to 716.95 billion yuan and 974.20 billion yuan. It is worth noting that the annualized growth rate of new contract amounts in the second quarter of this year was the fastest since the third quarter of 2018. Changes in fixed asset investment in the construction industry in Hebei Province have also hit rock bottom and are beginning to pick up the upward trajectory. The amount of fixed asset investment in the construction industry in the region contracted by 16.2% in February of this year, but the contraction rate narrowed month by month. By July of this year, a positive growth rate of 0.7% was finally recorded. By August of this year, the growth rate of fixed asset investment in the construction industry in the region had accelerated to 1.5%. From September 2019 to May 2020, real estate investment in Hebei Province recorded a monthly contraction. By February of this year, the real estate investment growth rate reached its bottom, and since March, the negative growth rate has narrowed month by month. Beginning in June of this year, real estate investment in the province regained positive growth momentum, and recorded an annualized growth rate of 2.7% in August this year. The area of newly started real estate construction in the province shrunk sharply in January-April of this year, but since May of this year, the difference between the newly started construction area in the province and the same period in 2019 was less than 1.0%. By July, the newly started construction area had expanded 9.5% compared to the same period last year, and by August, the newly started construction area had expanded by 11.3%.

In October of this year, Hebei Construction announced the signing of a strategic cooperation framework agreement with the Inner Mongolia Autonomous Region People's Government in October of this year. According to this, the two sides will cooperate in the construction of major projects such as civil aviation airports, roads and bridges, railways, urban light rail, water conservancy and water services, underground pipelines, new urbanization, tourism industry, infrastructure, etc., as well as industrial fields such as developing new energy, ecological construction, and hazardous waste rehabilitation.

At the end of 2019, the resident population of Inner Mongolia Autonomous Region was 25.40.0 million, and the gross domestic product of that year increased 6.6% year-on-year to 1,721.25 billion yuan.

The total output value of the construction industry in Inner Mongolia Autonomous Region increased 4.4% from 2018 to 108.61 billion yuan in 2019, less than one-fifth of the total construction industry output in Hebei Province, where the Group is based during the same period. In the 2020 annual quarter, the total output value of the construction industry in the Inner Mongolia Autonomous Region was RMB 33.88 billion, which is only 14.0% of the same period in Hebei Province. Therefore, we believe that the Inner Mongolia market has great potential for growth. This can be seen from the amount of new contracts signed by construction enterprises in the Inner Mongolia Autonomous Region in the 2020 quarter, which increased 14.5% over the same period last year to 791.9 billion yuan. Moreover, if the number of enterprises in the industry is used as a guideline, the level of competition in the construction industry in Inner Mongolia is relatively low compared to the Hebei region. In the 2020 annual quarter, the number of construction enterprise units in the Inner Mongolia Autonomous Region was only 839. In the same period, the number of construction enterprise units in Hebei Province reached 2,621.

The group has been established in Inner Mongolia for a long time and has established an excellent reputation. Its Ordos Sports Center swimming pool project, the new terminal project at Ordos Airport, and the Hohhot Baita International Airport expansion project have all received awards. According to a report from Xinhua News Agency in Hohhot, the Inner Mongolia Autonomous Region announced the implementation of 890 major infrastructure projects in April this year, and plans to complete an investment of about 130.0 billion yuan within the year. Projects include infrastructure construction projects such as water conservancy, highways, high-speed rail, airports, pipe networks, information, and logistics. Through its cooperation platform with the Inner Mongolia government, the Group is expected to obtain more projects in Inner Mongolia and further expand its local market share, while the Inner Mongolia market is expected to become another project and revenue growth base for the Group.

New infrastructure brings huge business opportunities New infrastructure includes information infrastructure, integrated infrastructure, and innovation infrastructure. Among them, information infrastructure includes computing power infrastructure such as 5G, the Internet of Things, the industrial Internet, satellite Internet, artificial intelligence, cloud computing, blockchain, data centers, and intelligent computing centers. Integrated infrastructure refers to integrated infrastructure formed by deeply applying technologies such as the Internet, big data, and artificial intelligence to support the transformation and upgrading of traditional infrastructure, such as intelligent transportation infrastructure and smart energy infrastructure. Innovation infrastructure refers to infrastructure that supports scientific research, technology development, product development, etc., such as major science and technology infrastructure, science and education infrastructure, industrial technology innovation infrastructure, etc.

We believe that new infrastructure will be the latest growth area for China's construction and infrastructure industry and bring new opportunities to contractors. This trend of digitization is already very obvious in the current epidemic. Amid the epidemic, the penetration rate of online offices, commercial cloud services, and online education has risen sharply. It is expected that the popularization of 5G in China will speed up the digitization of people's work and life, greatly stimulating demand for new infrastructure. Moreover, as measured by the efficiency of government finance in stimulating economic growth, after years of large-scale investment, the stock base of traditional infrastructure projects is already extremely high, and their effectiveness in stimulating economic growth has declined. However, new infrastructure is in its infancy, and there is broad scope for development. New infrastructure will bring huge business opportunities. Taking 5G as an example, a number of agencies estimate that by 2025, China's total investment in 5G network construction will reach 1.2 trillion yuan, compared to 14. Investments related to new infrastructure in China will range from 10.0 to 17.5 trillion yuan over the five-year period (2020-2025). The new infrastructure sector is expected to bring fresh development opportunities to Hebei Construction in the next five years, and will also become a catalyst for its investment theme and stock price.

Airport infrastructure dominates In terms of traditional infrastructure, Hebei Construction has advantages and established a reputation in the field of airport-related infrastructure. The Group is one of the contractors involved in the construction of Beijing Daxing International Airport and is also involved in the construction of Beidaihe Airport. Its Hohhot Baita International Airport expansion project won the Zhan Tianyou Award for China Civil Engineering in 2011, the 100 Classic and Excellent Projects for the 60th Anniversary of the Founding of New China in 2009, and the Luban Award in 2009; while its new terminal project at Ordos Airport won the 2013 Luban Award and the 2015 China Civil Engineering Zhan Tianyou Award. In October of this year, the Group won bids for two airport-type projects located along the Belt and Road, namely the second section of the flight area field project of the third phase expansion project of Zhongchuan International Airport in Lanzhou, Gansu Province, and the third flight zone project of the Siem Reap Angkor International Airport project in Cambodia. From January to October 2020, the Group won bids for more than 20 airport-type projects. With its advantages in the field of airport infrastructure-related infrastructure, it is expected that it will be able to obtain more airport-related project contracts.