Company profile: A leading domestic contract construction company. The company is a leader in the contract construction industry, with a remarkable first-mover advantage. After 20 years of listing, it became the first OEM share in China. Currently, the company's business market share has reached 20%. The company's shares are concentrated, and the actual controller is the State Assets Administration Commission. High-quality credit endorsements significantly help the company expand its business. The company is mainly engaged in government construction, commercial construction, and capital agency construction. Profits have grown steadily, with a compound growth rate of over 25% over six years. The company maintained a high dividend ratio for three consecutive years and promised that the dividend ratio for the next three years will not be less than 80%.

Industry Overview: Enough room for development and strong cyclical resistance. The contract construction industry is in a period of growth. The compound growth rate of newly signed construction area in the industry has reached 23% in 10 years. The market share of TOP5 companies in 2023 was about 50%. The market concentration remained high but declined. This is due to the gradual increase in the number of companies currently entering the contract construction circuit, leading to increased competition in the industry. The contract construction industry is an asset-light circuit. It has strong anti-cyclical properties. Unlike traditional development businesses, business opportunities in the contract construction industry have increased in the downward cycle of real estate. Against the backdrop of current sales pressure in the industry and frequent credit incidents of housing enterprises, under the promotion of the “Three Major Projects” and the “Document No. 14” program, many generational construction business opportunities have spawned: proxy construction opportunities brought about by insufficient urban investment operating rates, proxy construction opportunities brought about by guaranteed housing preparation plans, proxy construction opportunities brought about by urban village renovation, and proxy construction opportunities brought about by troubled housing companies' “insurance” projects and financial institutions' bad assets involved in housing. In the short term, there are also business opportunities that will also be brought about by new construction growth.

Company highlights: National layout, solid business. The company has a nationwide layout, with a total contract area of 120 million square meters. The new development is being carried out in an orderly manner. The total area of the new development area has grown at a compound rate of 24.4% over two years, and can maintain a high growth rate even under large-scale conditions. Government agency construction is the company's bottom warehouse business, contributing a steady share of about 25% of revenue every year. Through the exclusive advantage of credit empowerment, the company has seized development opportunities such as “secure transfer of buildings”, making commercial construction an acceleration point for the company's development.

Financial analysis: 1) Low debt ratio, zero interest-bearing debt, and all current liabilities are operating liabilities; 2) Cost control is good, gross margin is high; 3) The repayment cycle is manageable, and there is sufficient cash on hand.

Valuation and investment advice: Combining absolute valuation and relative valuation, we believe that the company's reasonable stock price range is 6.6-8.0 yuan, with 7%-29% room compared to the current stock price. The company's net profit for 2024-2026 is estimated to be 12.3/15.1/1.83 billion yuan, respectively, and corresponding earnings per share are 0.61/0.75/0.91 yuan, respectively. Corresponding to the current share price PE is 10.2/8.3/6.8 times, respectively, maintaining a “buy” rating.

Risk warning: the risk of overly optimistic valuations and profit forecasts; the risk that the downturn in the real estate industry poses to the company's business; the risk of increased competition in the contract construction industry; and the risk of partner compliance.