According to the Securities Times app, Guosheng Securities released a research report stating that under policy drive, the overall market is rebounding strongly. High-quality growth stocks are expected to show higher resilience. Focus is on three main directions: 1) Infrastructure and construction chain: Benefiting from recent government comprehensive stabilizing growth policies and potential follow-up fiscal policies, the Q4 infrastructure and real estate industries are expected to see improvement in funding conditions, accelerating the implementation of physical projects. Bullish on infrastructure and construction growth companies with fundamental improvement in the fourth quarter driving valuation restoration. Specifically recommending steel structure manufacturing leader Anhui Honglu Steel Construction (002541.SZ), leading South China construction design company Shenzhen Capol International & Associates (002949.SZ), and heating energy-saving leader Runai Intelligent (301129.SZ). 2) High-quality growth stocks in advantageous sectors: These sectors have broad long-term growth potential. If the macro demand improves in the future, there is significant room for fundamental improvement. Specifically recommending infrastructure soil treatment leader Shanghai Port Engineering (605598.SH), construction equipment leasing leader Zhejiang Huatie Emergency Equipment Science & Technology (603300.SH), privately-owned EPCOS leader Suwen Electric Energy (300982.SZ), and fine chemical modular leader Libert (605167.SH). 3) Construction inspection: Mainly downstream in real estate and infrastructure, the introduction of stabilizing growth policies is expected to drive leading companies' profitability improvement with significant upward restoration potential. The pilot progress in housing retirement funds is expected to boost demand for existing house inspections. Specifically recommending Shenzhen Rayjet (300977.SZ) and Construction Science Holdings (301115.SZ).

1) Infrastructure and construction chain: Anhui Honglu Steel Construction, Shenzhen Capol International & Associates, Runai Intelligent. Local government finances and real estate owner funds were tight in the first three quarters of this year with weak macro demand, putting pressure on the performance speed and cash flow of infrastructure and construction chain companies. With the recent introduction and implementation of comprehensive stabilizing growth policies by the government, and the potential future introduction of incremental fiscal policies, there is hope for a marginal improvement in funding for the fourth quarter in the infrastructure and real estate industry, which will accelerate the implementation of physical projects. Bullish on the expected reversal of the basic fundamentals of leading companies in the infrastructure and construction chain in the fourth quarter, driving accelerated valuation restoration. Key recommendations:

Zhongsheng Securities' main points are as follows:

Which are the high-quality growth stocks in the current low-end construction sector?

The overall market is rebounding strongly, and high-quality growth stocks are expected to demonstrate higher resilience. Since September 24th, under policy drive, the market has shown a strong rebound with the SSE Composite Index/Shenzhen Component Index/Chinext Price Index / SWAG Construction Index accumulating gains of 21.4%/30.3%/42.1%/24.7% over 5 trading days. Looking ahead, the bank believes that high-quality growth stocks that previously experienced deep declines are likely to show higher resilience: 1) From a fundamental perspective (EPS): High-quality growth stocks are in a long-term positive trend, but due to being mostly private enterprises and relatively small in scale, they have been significantly impacted by weak macro demand. With the continuous efforts of the comprehensive policy, if the macro demand improves subsequently, the expected improvement in the fundamental of high-quality growth stocks is likely to be more significant. 2) From a valuation perspective (PE): Continuous reductions in holdings of small and medium market capitalization stocks by institutions have led to a sharp decline in high-quality growth stocks. Currently, valuations and institutional holdings are at historical lows. With the rapid increase in market trading volume, liquidity has significantly improved. Under policy drive, market risk appetite has greatly recovered, and incremental funds are expected to choose the targets that have experienced significant declines, low institutional holdings, and relatively small market capitalization. Therefore, high-quality growth stocks are expected to show greater valuation resilience.

Direction One: Infrastructure and construction chain - Anhui Honglu Steel Construction, Shenzhen Capol International & Associates, Runai Intelligent. In the first three quarters of this year, local finances and real estate owner funds were relatively tight, with weak macro demand, putting pressure on the performance and cash flow of companies in the infrastructure and construction chain. With the recent introduction of comprehensive stabilizing growth policies by the government and the potential future introduction of incremental fiscal policies, there is hope for an improvement in funding conditions in the fourth quarter for the infrastructure and real estate industry, which will accelerate the implementation of physical projects. Bullish on the expected fourth-quarter reversal of the basic fundamentals of leading companies in the infrastructure and construction chain, driving accelerated valuation restoration. Key recommendations:

Anhui honglu steel construction: The penetration rate of steel structure has broad room for improvement, and the scale benefits of leading manufacturing continue to be evident. According to the planning of the China Steel Structure Association, by 2025/2035, the proportion of national steel structure production to crude steel production in China is expected to reach 15%/25% respectively (approximately 10% in China in 2022, and about 50%/40% in the USA/Japan and South Korea respectively). The proportion of steel structure buildings to new construction areas is expected to reach 15%/40%. The space for improvement in steel structure penetration is large, and the industry is expected to continue to grow in the medium to long term. As a leading steel structure manufacturer, Anhui honglu steel construction is expected to benefit at the core. The company's core growth drivers are clear in the medium term: 1) The company's steel structure production capacity has reached 5 million tons (planned to reach 5.2 million tons by the end of 2024), with a capacity utilization rate of approximately 90% last year. With the continuous maturity of the company's production lines and intelligent upgrades of the lines, the subsequent capacity utilization rate is expected to exceed 140%, continuously releasing growth space; 2) Leveraging the scale benefits, the company continuously reduces procurement costs through centralized procurement and strategic cooperation with upstream steel plants, building an information-based control system to optimize production and transportation scheduling, and lowering production costs to continuously strengthen profitability; 3) Continuously promote intelligent manufacturing (BIM management + robots), consolidate cost, quality, and efficiency advantages, steadily increase market share. It is predicted that the company's net income attributable to the mother from 2024 to 2026 will be 0.91/1.02/1.13 billion yuan, with year-on-year changes of -23%/+12%/+11%. The current stock price (as of 9/30) corresponds to PE multiples of 12/10/9 times.

Shenzhen capol international & associates: Leading in Southern China's architectural design, with ample funds on hand and excellent cash flow performance. The company is a high-quality leader in architectural design, with its main business in the Southern China region, including Guangzhou and Shenzhen. Currently, core cities such as Shenzhen and Guangzhou have significantly relaxed real estate control measures, which is expected to boost real estate sales in the Guangzhou-Shenzhen region, improving the funding situation for real estate developers. The company has been deeply involved in urban renewal for 16 years, actively participating in the formulation of Shenzhen's housing guarantee policies and design standards, expected to benefit from the accelerated development of Shenzhen urban area and the increase in affordable housing construction. As of the end of the first half of 2024, the company had cash on hand of 0.77 billion, with a current market cap of only 2.3 billion (as of 9/30), providing sufficient safety margin; from 2021 to 2023, the company's operating cash flow remained net inflows, with net cash ratios of 226%/237%/178%, benefiting from the optimization of its business structure (in 2023, the proportion of EPC orders has been reduced from 41% in 2020 to 2%), with cash flow expected to remain excellent, and a high dividend payout ratio. It is predicted that the company's net income attributable to the mother from 2024 to 2026 will be 0.16/0.19/0.22 billion yuan, with year-on-year growth of 0%/18%/16%. The current stock price (as of 9/30) corresponds to PE multiples of 14/12/10 times.

Rena smart: Clearly-defined heating energy-saving demand under the "dual carbon" policy, the advantages of the leading one-stop service are expected to continue to show. Benefiting from the continuous advancement of the "dual carbon" development goals, China's demand for energy-saving and intelligent transformation of heating facilities is clear. In March of this year, the State Council issued the "Action Plan for Promoting Large-Scale Equipment Renewal and Consumer Goods Replacement", proposing to orderly promote heating metering transformation, continue to advance the renovation of heating facility equipment, and accelerate the release of demand for heating energy-saving transformation. Estimated existing unconverted space for heating energy-saving exceeds 1 trillion, with vast industry space. The Company is one of the few in China that can provide one-stop energy-saving services for heating, offering the STORM AI integrated solution (providing EPC+EMC service models) with fully independent core technologies of automation (OT) + informatization (IT) + intelligentization (AI), relying on a full set of software and hardware prominent advantages, it can reduce heat consumption and carbon emissions by 10-30%, reduce electricity consumption by 30-50%, and is expected to continue to benefit from the release of demand for heating energy-saving in the future. In addition, in the silicon carbide (SiC) industry, the company's wholly-owned subsidiary, Hefei Gaona Semiconductor Technology, focuses on research and production of third-generation semiconductor materials silicon carbide crystals, currently with 10 units of 8-inch resistance furnaces and inductance furnaces, actively promoting small-scale production, and expected to create new growth momentum in the future.

Second Direction: High-quality track growth stocks - Shanghai Port, Zhejiang huatie emergency equipment science & technology, Suwendian Energy, Lipbert. High-quality growth stocks are in a good long-term trend, and if future macro demand warms up, the improvement in fundamentals is expected to be more significant. Focus on leading stocks in specific industries such as construction equipment leasing, power engineering, overseas foundation engineering, and modular construction in the chemical industry. Key recommendations:

Shanghai Port: Leading in soft foundation treatment for infrastructure, benefiting from high investment growth in Southeast Asia and the Middle East. 1) Leading technology in soft soil foundation treatment, excellent profitability and operational quality: the company's technological advantage in soft soil foundation is prominent, with the gross margin maintained above 30% from 2020 to 2023, the net margin reaching 13.6% in 2023, significantly better than its peers, showing excellent profitability; as of the end of 2024H1, the company had cash on hand (including trading financial assets) of 0.8 billion, with an interest-bearing debt ratio of only 0.63%, and net cash ratios of 127%/85%/77% from 2021 to 2023 respectively, showing an advantageous financial position and operational quality. 2) Strong demand in Southeast Asia and the Middle East for infrastructure projects, driving high growth in company orders: the company has a deep presence in the Southeast Asian market (primarily in Indonesia), and is extending to regions such as the Middle East and Latin America. Currently, several countries in Southeast Asia have issued infrastructure investment plans, with projected infrastructure investments exceeding 1.4 trillion from 2021 to 2030; Saudi Arabia's Vision2030 has launched projects like Neom New City, expected to drive demand for foundation treatments upwards. In the first half of 2024, the company's newly signed contracts were 1.2 billion, a year-on-year increase of 78%, with a significant increase of 92% in overseas contracts. 3) Domestic Dalian Airport project is expected to contribute to performance increase: in May, the company announced a joint venture winning bid for the 0.39 billion Dalian New Airport ground treatment project, with the ground treatment portion approximately 2.5 billion. If new section orders are secured subsequently, it is expected to support the maintenance of high order volume for the year. According to the company's 2023 restricted stock incentive plan, the year-on-year growth rates of non-recurring net profit attributable to mother for 2023-2025 are required to reach 32%/26%/17%, with a three-year compound growth rate of 25%. It is predicted that the company's net income attributable to the mother from 2024 to 2026 will be 0.22/0.29/0.37 billion yuan, with year-on-year growth of 27%/30%/27%. The current stock price (as of 9/30) corresponds to PE multiples of 23/18/14 times.

Huatie Emergency: The domestic high machinery has a broad room for expansion, and it is expected to continue to empower growth after Hainan state-owned assets take over. 1) In terms of high machinery business: Compared with traditional tools such as scaffolding and cradles, high machinery has obvious advantages. It has been widely used in developed countries overseas. In 2022, the total market holdings in the USA reached 0.77 million units, with an average of 23.12 units per 10,000 people, and the coverage of building industry added value is 11.08 units per 100 million Yuan; while in 2023, the number of units in China is over 0.6 million, with an average of about 4 units per 10,000 people, and the coverage of building industry added value is about 7 units per 100 million Yuan. , There is ample room for the expansion of the domestic high machinery market. As one of the leading high machinery leasing companies in China (with a market share of about 20% in 2023), the company has rapidly increased the number of high-altitude work platforms in recent years, continuously improved its management system, built a scale advantage, and its future performance is expected to continue to steadily release. 2) In terms of multiple categories, the company is actively extending to the forklift field, using the high machinery business channels, and is expected to continue to build a multi-category equipment synergy advantage. At the same time, the company is also actively expanding its smart calculation business. The new contract for calculation services has reached 2.018 billion Yuan, of which equipment deliveries have exceeded 0.6 billion Yuan, continuously creating new growth momentum. This year, after Hainan state-owned assets took over the company, various businesses under the Hainan Holding Group are expected to form synergy with the company, and the state-owned background is expected to help reduce the company's debt financing costs (estimated to be reduced by 1.2%). It is forecasted that the company's net income attributable to shareholders from 2024 to 2026 will be 0.84/1.05/1.31 billion Yuan, with an increase of 4%/25%/25%. The current stock price (as of 9/30) corresponds to a PE ratio of 13/10/8 times.

Suwendian Energy: The continuous prosperity of distribution network transformation and upgrade, the leading private EPCOS steadily expands. As China accelerates the construction of a new power system, the rapid development of distributed energy, microgrids, electric vehicles, and energy storage industries, the terminal electric load presents a new trend of rapid growth, large changes, and diversification. The demand for distribution network transformation and upgrade continues to increase. National Grid’s '14th Five-Year Plan' investment in distribution network construction exceeds 1.2 trillion Yuan, accounting for over 60% of the total investment in grid construction. Subsequent distribution network construction is expected to continue to receive resource tilt. Since the power system reform in 2015, the level of marketization of the distribution network has continuously increased. Private enterprises continue to enjoy the reform dividends with flexible mechanisms and differentiated services, and their market share continues to rise. At the same time, under the background of 'dual carbon', the cost of industrial and commercial electricity is tending to rise, which can help customers improve electricity reliability, reduce electricity costs, and promote the increasing demand for intelligent electricity services for energy saving and emission reduction. The company is the leading private EPCOS in the distribution network, based on traditional supply and distribution electricity business, actively promote the development of upstream and downstream businesses in the industrial chain (electric power electronic equipment, optical storage charging, smart electricity, etc.), as well as the expansion of overseas businesses, continuously create long-term growth engines. The company had cash and cash equivalents (including trading financial assets) of 1.57 billion by 2024H1, with a current market capitalization of only about 4.2 billion. It is predicted that the net profit attributable to shareholders from 2024 to 2026 will be 0.25/0.3/0.36 billion Yuan, with a year-on-year growth of 219%/20%/20%. The current stock price (as of 9/30) corresponds to a PE ratio of 17/14/12 times.

Liberte: A leading modularization company in fine chemicals, accelerating cross-domain and cross-industry chain layout, with an expected compound annual growth rate of 37% in the next three years. Since 2022, global chemical giants such as BASF and Evonik have gradually transferred their production bases to China to enhance the stability of the supply chain. The company's key customers in China have investments and plans totaling over 150 billion Yuan, driving high business. In recent years, based on the advantages of fine chemical modularization, the company has accelerated the expansion of its business layout, horizontally expanding into new materials, oil and gas energy, mining, and other fields, vertically extending downstream engineering maintenance and operation services, actively exploring high-quality domestic customers. The company plans to issue convertible bonds to expand modular manufacturing capacity. Compared with the EPC business, the gross margin of modular manufacturing is significantly better, and the expected increase in the proportion of business is expected to drive overall profit margin improvement. The current company has abundant outstanding orders, with about 1.7 billion in new significant orders disclosed this year, and by the end of 2024H1, the company had 0.77 billion in cash on hand, with an interest-bearing debt ratio of only 6.6%, and excellent asset quality; the net cash ratio from 2021 to 2023 was 138%/306%/184%, showing excellent cash flow performance. It is forecasted that the net profit attributable to shareholders from 2024 to 2026 will be 0.26/0.36/0.49 billion Yuan, with an annual growth rate of 35%/30%/30%, achieving a CAGR of 37% from 2023 to 2026. The current stock price (as of 9/30) corresponds to a PE ratio of 16/12/9 times.

Direction Three: Construction Inspection – Shenzhen Ruijie, Jianke shares. Downstream of construction inspection mainly focuses on real estate and infrastructure construction. Impacted by the decline in new real estate construction and tight financial funds for infrastructure construction, industry demand continues to shrink, leading to significant pressure on revenue at the end of the leading companies. Meanwhile, under the heavy asset operating model, costs such as equipment depreciation and personnel expenses are relatively rigid, resulting in a significant decline in profit margins. With the current optimization policies for real estate gradually introduced and upcoming financial policies, downstream demand is expected to steadily recover, which is likely to drive significant upward repair elasticity in the leading companies' profitability. Moreover, the Ministry of Housing and Urban-Rural Development recently proposed the establishment of three systems: housing retirement funds, regular physical examinations, and safety insurance, which are likely to boost the demand for existing house inspection services, further opening up long-term growth space for the leading companies. Key Recommendations:

Shenzhen Ruijie: A pioneer in third-party engineering evaluation, accelerating customer structure optimization. The company is one of the early participants in the third-party engineering quality and safety risk assessment industry in China. In 2022, it was impacted by the downturn in real estate, resulting in pressure on revenue performance. Starting in 2023, the company actively adjusted its business structure, reducing the proportion of real estate clients, and expanding into industrial, insurance, and other sectors: 1) In the insurance assessment direction, it provides full life-cycle insurance reduction services for projects, actively serving the Engineering Quality Defect Insurance (IDI) assessment market, and establishing business cooperation with leading property insurance companies such as PICC, Ping An, Pacific, and China Life, with significant first-mover advantages. 2) In the industrial direction, it develops relationships with Tencent, China Mobile, Huawei, and other high-quality customers, providing project construction assessment and management services, while exploring new application scenarios such as hotel rating and property operations based on the 'service + platform + data' model. Income from the industrial/insurance sectors in 2024H1 increased by 190%/26%. The proportion of real estate revenue has been reduced from a high of 90% to 47%, optimizing the customer structure and improving profit quality. Furthermore, the Ministry of Housing and Urban-Rural Development recently expressed its intention to establish three systems: housing retirement funds, regular physical examinations, and safety insurance. The company has been deeply involved in the engineering assessment industry for over a decade, accumulating abundant project measurement and risk assessment data, demonstrating clear advantages in the existing building risk assessment field, while leveraging its existing insurance client advantages to penetrate the existing housing insurance assessment market, poised to benefit significantly from the trialing of the various housing retirement fund systems.

Jianke shares: a leader in construction and building material testing, continuously advancing cross-domain and cross-regional layout, expected to benefit from the policy implementation of regular housing inspections. 1) Actively expanding business layout relying on mergers and acquisitions: The company is a regional leader in construction and building material testing, accounting for about 70% in Jiangsu Province in the first half of 2024. In recent years, the company has gradually expanded to provinces outside Jiangsu through acquisitions, establishing five regional centers in Sichuan, Chongqing, Zhejiang, the Two Lakes region, Yunnan, and Guangdong. At the same time, actively expanding into fields outside construction, such as food, automobile, consumer goods, and electronic appliances testing, continuously broadening its layout across regions and domains. 2) Accelerated pilot implementation of housing retirement funds, the company is expected to benefit from the surge in existing house inspection demand: Recently, the Ministry of Housing and Urban-Rural Development stated that it is researching the establishment of three systems including housing retirement funds, regular inspections, and safety insurance. The company established a strategic plan early on to transform from new construction to providing services for existing buildings, focusing on the quality and enhancement services for safety, suitability, and durability of existing buildings through testing, reinforcement, renovation, and repair. It is also participating in the research on housing retirement fund policies and has strong industry influence in the operation of existing buildings. As the pilot of housing inspections progresses and the demand for existing house inspections surges, it is expected to support the steady growth of the company's construction testing main business.

Investment advice

The overall market rebounded strongly, and high-quality growth stocks are expected to show higher resilience in the future. Key bullish areas include: 1) Infrastructure and real estate construction chain: Benefiting from recent government comprehensive policies for stabilizing growth being successively implemented, coupled with possible future incremental fiscal policies, the funding situation in Q4 for infrastructure and real estate industries is expected to gradually improve, accelerating the implementation of physical work. Bullish on the improvement of the fundamentals of infrastructure and real estate construction companies in the fourth quarter, driving accelerated valuation recovery. Key recommendations include steel structure manufacturing leader Anhui Honglu Steel Construction (PE 12X), leading design firm in southern China Shenzhen Capol International & Associates (PE 14X), and heating energy conservation leader Ruina intelligent (PE 13X). 2) High-quality growth opportunities: High-quality sectors have wide long-term growth potential, and if the macroeconomic demand improves and the fundamentals recover, there is significant room for upward adjustment. Key recommendations include the leading company in infrastructure soft ground treatment Shanghai Port (PE 23X), the leading company in construction equipment leasing Zhejiang Huatie Emergency Equipment Science &Technology (PE 13X), the leading private EPCOS company in distribution network Suwendian Neng (PE 17X), and the leading modular fine chemical company Lipotek (PE 16X). 3) Construction testing: Dominated by downstream real estate and infrastructure, the policy of stable growth is expected to drive leading profits with significant potential for upward recovery. At the same time, the pilot of housing retirement funds is expected to boost the surge in demand for existing house inspections. Key recommendations include Shenzhen Ruijie and Jianke shares.

Risk warning

Risks include policies being implemented less than expected, slower-than-expected demand recovery, companies' order acceptance and execution progress falling short of expectations, and calculation errors.