Core views
Zhejiang Construction Investment (002761.SZ) is engaged in construction and other businesses. Debt conversion focuses on the value of high-rated debt conversion options. In terms of debt conversion, Zhejiang Construction Convertible Bonds (127102.SZ) has a moderate issuance scale ($1.00 billion). The debt rating is AA+. The current debt base value is 93.19 yuan, which is fairly protective and affordable. In terms of pricing, as of January 17, Zhejiang Construction Investment's original stock price was 9.44 yuan, corresponding to an average price of 85.74 yuan. Combining the fundamentals of the underlying stock and similar debt conversion judgments such as Construction Engineering Bonds and Tianlu Bonds, we believe that the reasonable affordability premium ratio of Zhejiang Construction Investment Bonds should be around 25%, and the corresponding price is around 112 yuan.
Stock industry analysis: The industry side focuses on phased improvements and gradual dividend rate improvements. The company's core business is engineering construction, mainly housing construction. The environment on the industry side is relatively weak. The core is on the policy side, infrastructure funding, etc., and the focus is on industry fluctuations brought about by the policy side. In terms of housing construction, since July 2022, favorable real estate policies such as “Guaranteed Buildings” and “16 Financial Rules” have been introduced, and the real estate industry policy environment has been improved in stages. In terms of infrastructure, China's steady growth policy continues to gain strength, the scale of special debt issuance is expanding and progressing ahead of schedule, and infrastructure construction carried out moderately ahead of schedule has driven a year-on-year increase in infrastructure investment. The industry may pay attention to the slow upward trend in dividend rates brought about by the increase in dividend rates.
Competitive advantage of original shares: The industry has complete qualifications, state-owned enterprise brand resource endowments, Zhejiang Construction Investment's main business includes engineering operations, etc. As of January 17, the company had a total market value of 10.21 billion yuan, annual revenue of 98.535 billion yuan in 2022, and net profit of 969 million yuan; the company's 2023Q1-Q3 revenue/net profit was 71,763/534 million yuan, +3.33/ -48.35% year-on-year. The company's main advantages are:
1. Industry qualifications: The company has more than 100 various enterprise qualifications, and has foreign management rights and import and export rights. It also continues to promote new model transitions such as EPC, investment, finance and construction integration, and promote construction industrialization; 2. State-owned enterprise brand: Zhejiang Construction Investment is the earliest state-owned construction enterprise in Zhejiang Province. The company undertakes key projects such as the construction of a G20 summit project and a permanent venue for the International Internet Conference; 3. Scale layout: The company promotes the “three major markets” business strategy for the government market, the large owner market and the two foreign markets, and optimizes the business layout.
Clause analysis: Good debt protection, affordability, and good overall debt conversion protection. The coupon interest rates for Zhejiang Construction Bonds are 0.2%, 0.4%, 0.6%, 1.5%, 1.8%, 2.0%, respectively. The maturity and redemption price is 108 yuan (including the final annual interest), the period is 6 years, and the YTM corresponding face value is 2.01%; the debt/subject rating is AA+/A+ (China Chengxin). The maturity yield of the 6-year AA+ short- and medium-term notes of the Shanghai Clearing House is 3.34% (2024/1/5) Calculated, the underlying value of the debt is 93.19 yuan. The debt The bottom has good protection. The revised terms are [15/30, 85%], the conditional redemption clause [15/30, 130%], and the conditional resale clause [last 2 years, 30, 70%]. As of January 17, the original stock price was 9.44 yuan, which is equivalent to a bond conversion parity of 85.74 yuan. Overall, the bond's debt protection is good, affordability is reasonable, and overall debt conversion protection is good.
Positioning and investment points: The bond conversion and purchase safety cushion is superior. The bond conversion focuses on the option value as of January 17. The underlying stock price of Zhejiang Construction Bonds was 9.44 yuan, corresponding to an average price of 85.74 yuan. Key investment points:
1. Zhejiang Construction's debt conversion scale is moderate, and debt conversion investment focuses on option value; 2. The original stock currently corresponds to PE (TTM) of around 22.59 times, with a market value of 10.2 billion yuan, and a moderate valuation; 3. The company's operating income has continued to grow since 2019, but net profit to mother has continued to decline after 2021, and profitability still needs to be observed. Judging from the fundamentals of the original stock, we believe that a reasonable premium rate for Zhejiang Construction Bonds should be 25%, and the corresponding price should be around 112 yuan.
Risk warning: The construction industry is not booming; real estate customer repayment risk; market competition intensifies.