We note that Hebei Construction has increased by 48% since the last report was released on October 12, which fully reflects the market's confidence in the company's development prospects and our bullish views. After the epidemic, the company quickly resumed production and operation in a short period of time and signed a large number of orders. In the long run, the company owns the Beijing-Tianjin-Hebei region. As the largest private construction group in the region, it is expected to obtain a large number of orders in Xiongan New area. The company recently announced a number of bid-winning projects, including housing and sewage treatment projects in Dongrong Film area of Xiongan New District, which are in line with our expectations of order growth brought about by the acceleration of the Xiongan project. Outside the Beijing-Tianjin-Hebei region, the company has established the Construction Investment Group in cooperation with the government of Inner Mongolia Autonomous region, which may become another important long-term growth engine.

Raise the forecast and target price: we believe that the company has won the bid for Anyue Jiayuan Community indemnificatory Housing (Phase II), the first steel structure assembly building complex in Baoding City, as a Class An assembly project 50 kilometers away from Xiongan New area. it has a strong demonstration significance. Our research on industry policy and company fundamentals shows that Hebei Construction has a large number of project experience in steel structure prefabricated buildings, and is expected to obtain a large number of high-quality projects through the policy Dongfeng. Taking into account the unique regional advantages of the policy, we increase the company's 20 / 21 / 22 revenue to RMB 69.9 billion / 101.9 billion / 124.7 billion, and correspondingly increase the 20 / 21 / 22 EPS forecast to RMB 1.27 per share 2.80 EPS 3.80 and adjust the target price to HK $49 per share. Maintain a "strong buy" rating. The current share price corresponds to a dynamic price-to-earnings ratio of 8.3 times earnings in 2021 / 2022.

There are frequent favorable policies for prefabricated construction, and the development of the industry has entered the fast lane. In July, thirteen departments such as the Ministry of Housing and Construction issued the "guidance on promoting the coordinated Development of Intelligent Construction and Building industrialization" and proposed to vigorously develop prefabricated buildings. In November, Xinhua released the "proposal of the CPC Central Committee on the formulation of the 14th five-year Plan and the long-term goals for 2035", referring to the "development of green buildings". We expect the national prefabricated construction market to grow at an average compound annual rate of 18% during the 14th five-year Plan period, and the proportion of prefabricated buildings in new buildings will reach the target of 30% set by the Ministry of Housing and Construction by 2025.

Hebei Construction is expected to obtain the explosive growth of steel structure prefabricated construction orders. First, the company invested in the construction of Hebei Green Building Industrial Park in Baoding, with a total investment of more than 1 billion yuan. Limited by the transport capacity of steel structure products, the manufacturing base is generally no more than 150 kilometers away from the project site. The company's industrial park is only 50 kilometers away from Xiongan New area, which is a high-quality natural moat. Xiongan New area, as a national demonstration special zone, plans to use prefabricated buildings in 80% of the future. According to the size of the future population of 3 million, only the steel structure of prefabricated housing, it is conservatively estimated that the demand of Xiongan New area will reach 60 billion yuan. Second, the company has rich experience and strong technical strength in steel structure prefabricated construction. Relying on the national assembly construction industry base, the company has carried out research and development on assembly buildings, applied for 20 utility model patents, and undertaken more than 30 assembly construction projects in Beijing-Tianjin-Hebei region. We believe that the company's rich experience in steel structure assembly construction project management will help the company to obtain relevant orders, especially from Xiongan New area, which has strict requirements on project quality. The recent A-level assembly project in Baoding City is the recognition of the company's engineering capacity. Support for A-level and above prefabricated construction projects may become the focus of future policy.

Recently, a number of favorable policies for prefabricated buildings have been issued intensively, and the development of the industry has entered the fast lane.

On July 28, the Ministry of Housing and Construction and other 13 departments issued the "guidance on promoting the coordinated Development of Intelligent Construction and Building industrialization" and proposed to vigorously develop prefabricated buildings with building industrialization as the carrier. On September 18, the China Council for International Cooperation on Environment and Development issued "Green Transformation and Sustainable Social Governance", which proposed to promote the development of green buildings and guide the full implementation of green building standards for new buildings in conditional areas and cities. On November 3, Xinhua released the "proposal of the CPC Central Committee on the formulation of the 14th five-year Plan and long-term goals for 2035", mentioning green keywords 19 times, including "developing green buildings". We believe that the development of green buildings will be an important task for the Chinese government to promote the transformation of the traditional construction industry during the 14th five-year Plan period.

Data show that China's newly built prefabricated floor space reached 420 million square meters in 2019, an increase of 44.8 percent over the same period last year. We expect the national prefabricated construction market to grow at an average compound annual rate of 18% during the 14th five-year Plan period, and the proportion of prefabricated buildings in new buildings will reach the target of 30% set by the Ministry of Housing and Construction by 2025.

The prefabricated building with steel structure has low permeability, green environmental protection, meets the requirements of development in the new era, and has a huge space for development.

Precast concrete, steel structure and wood structure are the three major categories of prefabricated buildings. And 19 years ago, there was no obvious emphasis on precast concrete and steel structures in the residential sector. In an environment where cost is the main consideration, 65% of prefabricated buildings use precast concrete structures and 30% of prefabricated buildings use steel structures. However, compared with the traditional concrete structure building form, steel structure building has three characteristics of "high, large and light". It is easy to realize design standardization, industrialization of component production, construction mechanization and assembly, so it is the first choice of green building. In March 1919, the Ministry of Housing proposed for the first time to carry out the pilot construction of prefabricated housing with steel structure. In December of the same year, the Ministry of Housing mentioned "vigorously promoting the pilot construction of prefabricated housing with steel structure". In 19 years, the penetration rate of steel structure housing in China was about 1%. Some provinces and cities have put forward the target of steel structure prefabricated housing to reach more than 12%. We believe that if the steel structure is promoted and accelerated in the short term, the permeability of steel structure in the medium and long term is expected to continue to increase. The steel structure prefabricated construction market will outperform the precast concrete market for a long time.

Recently, orders of steel structure companies are growing rapidly, reflecting the upsurge of the industry. We have noticed the rapid increase in the amount of orders of representative steel structure companies recently. In the first three quarters of this year, orders for southeast grid and Hangxiao steel structures grew by 45% and 44% respectively compared with the same period last year, fully reflecting the general environment in which industry companies benefited from the increase in steel structure permeability.