Since 2020, prefabricated construction industry standards have been improving, laying the foundation for large-scale and industrialization. Since 2020, the Ministry of Housing and Construction has issued a number of policy documents, such as “Prefabricated Housing Design and Selection Standards”, covering fields such as prefabricated PCs, prefabricated steel structures, and prefabricated decoration; officially issued design specification documents provide reference standards for the design, production, construction, and decoration of prefabricated buildings, which help promote standardization and large-scale production of prefabricated buildings. In the future, as the degree of standardization of prefabricated buildings becomes more and more perfect, and large-scale prefabrication costs will gradually decrease, prefabricated buildings are expected to expand to a wider range of applications, and the industry space may continue to expand.
Guaranteed housing is advancing at an accelerated pace, and prefabricated buildings have benefited the most. In 2023, the central government and many local governments introduced policies to encourage the construction of “three major projects” and guaranteed housing construction, and the progress of guaranteed housing construction may accelerate markedly in 2024. Some provincial and municipal guaranteed housing construction documents clearly require or encourage prefabricated construction processes. Guaranteed housing is a government-led market, and cost is not the primary consideration. With current policy support, it is determined that the acceleration of guaranteed housing construction will drive the prefabricated construction industry to usher in a new wave of growth. After large-scale industrialization, the economy of the prefabricated industry chain may be greatly improved, and the penetration rate is expected to accelerate.
Central enterprise prefabricated construction engineers may benefit from the development of the industry. China Railway Assembly is the only high-tech innovative prefabricated construction business platform under China Railway. It is a leading domestic supplier and integrator of prefabricated construction parts. According to the company's performance forecast, in 2023, the company achieved a new order contract amount of about 5 billion yuan, +60% year over year, and achieved relatively rapid development, mainly benefiting from the company's vigorous development of the prefabricated steel structure business; it achieved net profit loss of 150 million yuan to 200 million yuan, further reducing losses by 23.08%-42.31% year on year.
Profit forecast, valuation and rating: In 2023, China Railway's assembly business situation improved, orders and revenue increased sharply, and net profit to mother decreased further. In the context of increased promotion of guaranteed housing, demand for prefabricated buildings is expected to be further boosted, and the company may directly benefit. We adjusted the company's 2023-2024 profit forecast to -196 million yuan (480% reduction) and 0.2 billion yuan (76% reduction), respectively, and added the company's 2025 net profit forecast of 48 million yuan. The current price corresponds to the 2024 dynamic price-earnings ratio of 181x, maintaining the “gain” rating.
Risk warning: Large fluctuations in steel prices affect the company's profitability, downstream demand falls short of expectations, and promotion of guaranteed housing and prefabricated construction policies falls short of expectations.