China Construction 2024 expects a dividend rate of 5.3%, which is close to the overall level of the “Big Four” and is highly attractive. As of 2024/7/26, China Construction's expected dividend rate for 2024 is 5.3%, which is close to the overall level of the banking sector. It is higher than ICBC, Bank of China, and Agricultural Bank of China in the “Big Four”, and also higher than large central enterprises in the dividend sector such as CNPC, CNOOC, China Mobile, and Changjiang Electric Power; PB/PE is 0.54/4.2 times, which is the lowest level within the above companies; we expect the 2024 performance to increase by 5.1% and maintain steady growth. Overall, China's construction dividend ratio is close to the average of the “Big Four”, with low valuation and steady performance, which is highly attractive in the current market environment.

The market share of “real estate+construction” has increased, and the performance continues to grow steadily and strongly.

Construction business: The market share is increasing at an accelerated pace, and the business structure is continuously optimized. 1) The competitive advantage of central enterprises is prominent, and the market share is increasing at an accelerated pace: in terms of construction area, the market share of the company's housing construction business has increased steadily in recent years, from 10% in 2011 to 21% in 2023; in terms of contract signing, the company's share of the total number of contracts signed in the industry increased from 6.7% in 2011 to 10.9% in 2023. 2) Leading management is resilient, and the order guarantee ratio remains at a high level: New orders increased by 13.7% in the first half of 2024, leading operations were resilient, and active orders were abundant. By the end of 2023, the company's outstanding contract amount was 7084.8 billion yuan, which is 3.1 times the company's 2023 revenue, and the amount of new contracts signed by the company each year greatly exceeds the current year's revenue (about 1.7-2.1 revenue ratio). The amount of contracts in hand continues to accumulate, and the order guarantee ratio remains at a high level, which is expected to support steady future revenue growth. 3) The share of infrastructure and manufacturing orders has increased, and the business structure has been continuously optimized: Judging from the total order value, the proportion of new infrastructure orders in total orders increased from 14% in 2011 to 30% in 2023. Looking at the housing construction sector, the internal structure of the company's housing construction business has been significantly optimized in recent years. In 2023, manufacturing plant orders surged 59% year on year, accounting for 23%; businesses such as industrial parks, urban renewal, district development, medical care, culture, and municipal government owners also increased dramatically. Residential projects accounted for 48%/43%/30%/25% of housing construction orders in 2020-2023, respectively. The share continued to decline, and the scale shrank sharply. The share of pure residential orders in total construction orders has dropped from 50% at its peak to 17% in 2023, and non-residential orders have reached 83%. The construction business structure is more balanced, resilience to risks has been enhanced, and operational stability has been improved.

Real estate business: The market share of leading central enterprises is expected to increase, and the risk of impairment of steady operations is manageable. In recent years, supply-side reforms in the real estate industry have been accelerated, presenting a “leftover is king” pattern. Capital and land resources are rapidly skewed towards financially sound central enterprises. The company's real estate business adheres to a low-leverage business strategy and has stable financial indicators. Compared with other housing enterprises, it has a significant competitive advantage, and its market share is expected to increase at an accelerated pace in the future. In 2023, the company's real estate sales amount was 451.4 billion yuan, up 12.4% year on year (the Bureau of Statistics revealed a 6.5% decline in industry sales). Real estate sales in the first half of this year were 191.5 billion yuan, down 20.6% year on year. The performance was also significantly better than that of the industry as a whole and leading companies as a whole (according to Kerui statistics, the sales volume of Top 100 housing enterprises fell 39.5% in January-June). As a leading real estate central enterprise, the company's overall business strategy is conservative, and the risk of additional large inventory depreciation is low: 1) The company's layout is mainly in Tier 1 and 2 core cities, and the land storage structure is relatively healthy. 35% of the inventory is located in the four major first-tier core cities. The four first-tier cities that added land acquisition reserves in 2023 together accounted for 46%, and the top ten cities, including second-tier key cities such as Suzhou, Chengdu, and Nanjing, accounted for 76% in total. 2) The overall profitability of the company's real estate business is high. In the past two years, the average sales price of the company was 23,809 yuan/square meter, and the average cost of land acquisition was 14,322 yuan/square meter, which has a high margin of safety. The gross profit of the company's real estate business increased 5.1% year-on-year in 2023, ending two consecutive years of decline, and the growth rate has bottomed out and rebounded.

The historical dividend rate has been stable, and future dividend amounts are expected to maintain steady growth. Since its listing in 2009, the company has continued to pay cash dividends. Since listing, it has distributed a cumulative cash dividend of 92.8 billion yuan, accounting for 19.6% of the cumulative net profit realized to mother. The dividend rate has remained above 20% for the past 4 years, which is relatively stable.

Due to the company's strong ability to continue to grow steadily and the dividend rate is stable, it is expected that the dividend amount will continue to grow steadily in the future.

Investment advice: The company expects a dividend rate of 5.3% in 2024, which is comparable to the level of the four major banks. In terms of dividend sustainability, the market share of the company's real estate+construction business has increased, the business structure has been continuously optimized, the performance has a strong ability to continue to grow steadily, the dividend rate is stable, and the dividend amount is expected to grow steadily. Currently, the company's valuation is in the lowest range in history. It is a scarce “dividend asset” with the Chinese title, and continues to be the core recommendation.

Risk warning: risk of dividends falling short of expectations, risk of falling macro demand, risk of impairment of accounts receivable, real estate policy risk, etc.