Incident: On October 16, 2024, the Chief Executive of the Hong Kong Special Administrative Region issued the 2024 Policy Address, proposing plans for future infrastructure construction in the Hong Kong region: (1) promote the construction of the northern metropolitan area, and about 60,000 housing units will be completed in the next five years; (2) increase the supply of public housing, which can reduce the waiting time to four and a half years; (3) launch the EIA process for the artificial island project in Jiaozhou, with the goal of completing the approval process next year; (4) develop the world's leading airport cities and expand the size of the airport city by more than doubling; (5) promote the development and application of construction technology, right Adheres to the national standard Hong Kong standard.

The construction of the northern metropolitan area has accelerated, and the company's business in Hong Kong continues to expand. In October 2021, the HKSAR Government proposed the “Northern Metropolitan Area” concept. The current Hong Kong Policy Address proposes further plans for the construction of the northern metropolitan area. In the next five years, about 60,000 housing units will be completed to develop the Beidu University Education City. In terms of transportation infrastructure, the main line of the North Ring Road will be completed in 2034, and the Beidu Highway (Xintian section) is expected to be opened in 2036. To promote the development of the Hetao Port Shenzhen Innovation and Technology Park, the total floor area of the first phase was doubled by 1 million square meters. According to our earlier report “China Construction International: Hong Kong and Macau Infrastructure Leader, “Technology+Investment+Construction” Leads High Quality Development, it is expected that the Northern Metropolitan Area and the “Ten-Year Hospital Development Plan” will drive the growth of the Hong Kong construction market. Judging from the company's business situation, the company's 24H1 Hong Kong business revenue was 18.2 billion HKD/year over year. Furthermore, the company signed new orders of 70.9 billion yuan in Hong Kong in 2023, an increase of 58% over the previous year. The development of the Hong Kong business has begun to accelerate, and we are optimistic that it will continue to expand in the future.

Profit forecasting and investment advice. We expect the company's net profit to be HK$10.3/11.8/13.5 billion in 24-26, respectively. Referring to comparable company valuations, we will give the company 7 times PE valuation in 24 years, corresponding to a reasonable value of HK$14.38 per share, maintaining a “buy” rating.

Risk warning: Market competition increases risks, government investment risks, and project progress falls short of expectations.