The “four vertical, four horizontal and two networks” national high-level waterway plan has been rolled out, and canal construction ushered in new opportunities in policy. During the “14th Five-Year Plan” period, emphasis on water transport increased, and canal construction may become an important support for transportation infrastructure in the new era. According to the “14th Five-Year Plan for Water Transport”, 2,500 kilometers of navigation targets were added during the “14th Five-Year Plan” period, and only 457 kilometers of inland waterways were added in 2023. According to the “four vertical, four horizontal and two networks” target of 0.025 million km of the national high-grade waterway network, in the future, the country's high-grade waterways may still need to be built about 0.01 million kilometers, and the demand for canal construction is broad. On the financial side, an additional trillion dollars of special treasury bonds were issued at the end of 2023. As of June 18, 2024, the country had disclosed that additional treasury bonds had been funded in a total of 30 provinces, with an amount exceeding 890 billion yuan. 2024M1-8 water investment was +32.6% year over year, and +66.9% year over month in August (growth rate +28.3 pct).

Inland waterway shipping ushered in a boom in construction. The six major canal projects plan to invest 850 billion to reshape the water transport network in 2023. Fixed asset investment in inland river construction was +25.8%. Since 2018, fixed asset investment in inland river construction has surpassed fixed asset investment in coastal construction. In the first half of 2024, completed investment in fixed assets for coastal and inland waterway construction increased by 9.5% year-on-year, and inland river construction maintained a high level of prosperity.

It is planned to build the six major canals, the Pinglu Canal, the Zhejiangjiang—Guangdong Canal, the Xianggui Canal, the Jinghan Canal, the Jianghuai Canal, and 47 inland waterway water transport projects in Henan, respectively. The total investment of the six major canal projects exceeds 850 billion yuan. After completion, the projects are expected to help the inland provinces integrate into the coastal economic circle and promote balanced development among regions.

As the largest dredging enterprise in the world, CCCC is expected to fully benefit from the approximately 19.9 billion Pinglu Canal project announced by CCCC in March 2023. As an important construction force for the Pinglu Canal Project, CCCC has won more than 21.5 billion yuan in contract amounts, including survey, design and pilot projects, accounting for about 30% of the total investment of Pinglu Canal, accounting for about 30% of the total investment of Pinglu Canal's 72.7 billion, consolidating China's leading position in CCC's transportation infrastructure business. Recently, construction of the Dechong Fu South Canal in Cambodia began. The Dechong Fu South Canal project is the first inland river dredging project in Cambodia. The total investment is about 12.1 billion yuan. Most of the investment comes from Cambodia. Part of the investment is funded by China Communications Construction subsidiary China Road and Bridge, which fully demonstrates the technical strength of Jiaotong Construction in the field of dredging and the diversified development of overseas investment business. As the world's largest dredging company, China Communications Construction is expected to fully benefit from the construction of domestic and foreign canal projects.

Infrastructure central enterprises are the “pioneers” of overseas, and the “three new” businesses help improve operational quality and efficiency 1) Overseas revenue & orders achieve high growth, with 24H1 overseas orders accounting for more than 20%, accounting for the highest share of overseas orders among traditional infrastructure central enterprises; 2) The share of “three new” businesses increased rapidly, and 24H1's “three new” business signed new contracts worth 295.2 billion yuan, an increase of 51% over the previous year, accounting for over 30%, which is expected to create a new growth pole; 3) Equity incentives consolidate growth momentum, and mid-term dividends focus on shareholder returns. The rate is 4% (as of 24/9/ 20, calculated according to the 20% dividend ratio). Investment projects have accumulated considerable operating assets. Demand for canal construction is considerable, and water conservancy investment remains high. We are optimistic about the company's medium- to long-term development. We expect the company's net profit to be 25.2, 27.8, and 31.1 billion yuan in 24-26. The approval grants the company 7 times PE over 24 years, corresponding to a target price of 10.81 yuan, maintaining a “buy” rating.

Risk warning: Canal construction progress falls short of expectations; water and infrastructure investment is weaker than expected; risk of impairment of accounts receivable; risk of internationalization.