Chikuyu Intelligent Manufacturing Technology (726 HK) is a leading company in the prefabricated building components industry. We believe that with the support of Jianye Group, the company will usher in a major trend in the development of China's prefabricated industry, and the government's policy support will drive the penetration rate to continue to rise. This will drive the industry's compound annual growth rate of ~ 17% between 2020 and 25. The potential market size is estimated to exceed 250 billion yuan. We believe that this trend has a high degree of certainty and is a major long-term benefit for the company's development, and is expected to further increase its market share in this fragmented market. The company's current price-earnings ratio in 2020 and 21 is 20.2 times/14.8 times. We think the valuation is attractive and investors are advised to pay close attention.

The huge opening will accommodate potentially doubling stocks

Prefabricated buildings are an effective way to reduce carbon emissions and pollution in the construction industry (accounting for about 40% of China's total carbon emissions) and address labor shortages. The central government plans to have a penetration rate of 30% of prefabricated buildings by 2025, while the figure for 2019 is slightly below 10%. We believe this is a key driver of industry growth. We have seen that many provinces have set minimum targets for 2020 and 25, with national averages of 15%/30%, respectively. We expect that the precast concrete (PC) market will continue to grow rapidly and reach 250 billion yuan in 2025, compared to 77 billion yuan in 2019, with a 5-year compound annual growth rate of ~ 17%. Furthermore, the implementation of government policies will continue to benefit the industry, including floor area ratio incentives (sales revenue can increase by about 3%), earlier pre-sales, and preferential access to land. With the support of Jianye Group, we expect Zhuyou Zhizao to further gain its market share in the next few years, especially in the core regions of Jianye Group such as Henan Province.

A new starting point for 2020, a big leap forward in 2021

Following the change in the controlling shareholder in 2019, the new shareholder, Mr. Hu Baosen (the main shareholder of Jianye Group), currently holds 72.27% of the shares. With the participation and support of Jianye Group, we have seen an acceleration trend in the company's development. The sales volume of prefabricated building components announced earlier accelerated from 44% in 2019 to 72% in 2020. Since the second half of last year, the company has expanded its business to the entire supply chain, from a manufacturer of prefabricated components to a provider of an integrated industrial chain model, providing services including construction, decoration and garden services. As the PC business continues to grow rapidly, we anticipate that the new business described above will be a major driving force for the company's future growth. Furthermore, the company earlier granted options of approximately 202 million shares to employees (about 7.2% of the existing issued shares) at an exercise price of HK$1.09, which will further bind the interests of management and shareholders.