Introduction to this report:

Shanghai issued a license for demonstration applications of driverless intelligent connected vehicles, and the Urban Construction Design Group, a subsidiary of Tunnel Co., Ltd., promoted vehicle road cloud construction and carried out a number of vehicle road cloud demonstration projects. New 2024Q2 orders increased 11% by 23.5 billion yuan.

Key points of investment:

Shanghai issued a license for the demonstration application of driverless intelligent connected vehicles, and field tests will begin for the public. (1) On July 4, during the 2024 World Artificial Intelligence Conference, Shanghai issued the first batch of driverless intelligent connected vehicle demonstration application licenses, and four companies were certified; the certified company Saike Intelligent Technology said that the first batch of 5 cars will be launched, and more than 40 units will be launched by the end of the year; according to a report by the Financial Association on the 16th, smart driving companies will focus on preparation and fine-tuning in the early stages of testing, and will launch field tests of driverless intelligent connected vehicles for ordinary citizens within the next week. (2) On July 3, the Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of Natural Resources, the Ministry of Housing and Construction, and the Ministry of Transport issued the “Notice on Announcing the List of Pilot Cities for the “Vehicle Road Cloud Integration” application of intelligent connected vehicles, which identified 20 cities (consortia) including Shanghai and Beijing as pilot cities for the application of intelligent connected vehicles.

The Urban Construction Design Group, a subsidiary of Tunnel Co., Ltd., launched a number of vehicle road cloud demonstration projects.

(1) The Urban Construction Design Group, a subsidiary of the company, is one of the earliest design consulting companies engaged in intelligent transportation industry design in China, focusing on cutting-edge technology fields such as Internet+ and artificial intelligence, and continues to make efforts in vehicle road cloud construction. (2) The projects carried out include the country's first intelligent connected vehicle demonstration zone open road intelligent connected vehicle test environment construction project in the core area of Shanghai Auto City (Phase I), the country's first smart full travel chain test demonstration zone smart connected vehicle test demonstration zone construction project (Phase I), and the country's first extremely cold autonomous driving test site autonomous driving test site in Heihe City, Heilongjiang Province. (3) It will seize new opportunities for the development of intelligent connected vehicles around the world, promote the integration of infrastructure connections, help the intelligent connected vehicle and smart transportation industry to accelerate the leap in energy levels, and strive to form “urban construction characteristics” in terms of scenario construction, application scale, industrial development, regional collaboration, etc. In 2024, new orders of 46.1 billion yuan will increase by 9%, and the investment business will increase by 10.3 billion yuan by 83%. (1) New orders of 46.1 billion yuan increased by 9% in the first half of 2024, of which 23.5 billion yuan of new orders in Q2 increased 11%. In the first half of the year, the construction business increased by 13% to 85% by 39.1 billion yuan, the design business decreased by 24% by 2.9 billion yuan, the operating business by 3.9 billion yuan increased by 0.1%, and the digital business by 0.23 billion yuan. (2) Looking at construction business by region, new signings of 19.3 billion yuan within Shanghai decreased by 11.4% to 49.3%, while those signed 16.9 billion yuan outside of Shanghai increased by 32.2% to 43.3%, and new overseas signings of 2.9 billion yuan accounted for 7.4%. (3) By industry, rail transit 7.8 billion yuan decreased by 8.4% to 19.9%, municipal engineering 12.2 billion yuan increased 38.1% to 31.2%, energy engineering 7.3 billion yuan increased 53.9% to 18.6%, road engineering 2.7 billion yuan increased 23.7% to 6.9%, and real estate engineering decreased by 28.4% to 14.8%. (4) New investment projects of 10.3 billion yuan increased by 83% in the first half of the year.

Tunnel shares have a dividend ratio of 5.78%, 0.69 times PB and 6.3 times 2024PE, which is the lowest in history. (1) Maintain an increase in holdings. The 2024-2026 EPS forecast will increase 9%/8%/7% to 1.02/1.10/1.17 yuan. Maintain the target price of 9 yuan, corresponding to 8.8 times PE in 2024. (2) The company's current dividend ratio is 5.78%, PB0.69 times the 10-year quantile 11%, and 2024PE6.3 times the 10-year fraction 12%. (3) Strive to increase revenue by 5-10% and net profit to mother by 5-10% in 2024; the new three-year assessment system will be optimized and perfected, and the optimization of most internal structures will be studied and explored. (4) Tunnel Co., Ltd.'s investment business revenue in 2023 was 2.86 billion yuan, accounting for 4.9%, gross profit ratio of 43.6%, and gross profit accounting for 16.6%. In 2023, the overall operating cash flow of construction companies was under pressure, but the cash flow of Tunnel shares was positive, and the net operating cash flow/net profit to mother was 1.08 times.

Risk warning: macroeconomic policies have been tightened beyond expectations, infrastructure investment has fallen short of expectations, etc.