Leading domestic production of prefabricated PC components. In 1996, Mr. Zhang Jian, founder of Yuanda Housing, and his management team entered the field of construction industrialization; in March 2006, Yuanda Limited was established, awarded the “National Housing Industrialization Base” in 2007, and named one of the “National Prefabricated Construction Industry Bases” by the Ministry of Housing and Construction in 2017. In 2018, it became the only prefabricated construction enterprise with the Ministry of Industry and Information Technology's intelligent manufacturing pilot demonstration project; it was listed on the Hong Kong Stock Exchange in 2019, becoming the first stock to IPO in Hong Kong in the prefabricated construction industry. The company's business is mainly PC component manufacturing, accounting for 92.6% in 2020, supplemented by equipment manufacturing, accounting for 3.5% in 2020. The engineering contracting business shrank year by year, and accounted for 3.9% of revenue in 2020. Currently, the company's shares are relatively concentrated, and the actual controller holds 56.10% of the shares.
The prefabricated industry remains booming, and the application of prefabricated PC components dominates. Influenced by environmental protection and the “aging” of construction workers, prefabricated construction methods will be a trend in the future. In recent years, the central government and governments at all levels have intensively introduced incentive policies to promote the development of prefabricated buildings. According to the “Guiding Opinions on Vigorously Developing Prefabricated Buildings” issued by the State Council in 2016, they are striving to make prefabricated buildings account for 30% of the newly built construction area in about 10 years; in 2020, prefabricated construction area accounted for 20.5% of newly built construction area. According to our sensitivity analysis, if we follow the 2025 30% target, prefabricated PCs account for 68.3% of the new construction area of prefabricated buildings, and the price of prefabricated PCs is 3,000 yuan/cubic meter. Even if the new construction area does not increase, the scale of prefabricated PC components in China will reach 314.8 billion yuan by 2025, with an average compound annual growth rate of 7.91%.
The company has leading production capacity, combined with intelligent manufacturing systems, outstanding production efficiency, and sufficient orders have led to an increase in capacity utilization. The innovative “two-wheel drive” development model helped the company lead production capacity. By the end of 2019, the company had 86 joint plants, 234 PC production lines, an annual production capacity of 4.68 million cubic meters, 15 self-operated factories, 71.5 PC production lines, and an annual production capacity of 2.145 million cubic meters. The company innovates, develops and applies the full-process digital information system PC-CPS, innovates the traditional construction industry using new industries such as the Internet and big data, and applies digital twin technology to complete the whole process of design, production, logistics, construction, operation and maintenance in cyber space, further improving the product quality and construction efficiency of houses. With the development and layout improvement of the industry, the company's capacity utilization rate gradually increased, from less than 30% in 2017 to 45.8% in 2019. The company's expense ratio decreased significantly, but in 2020, due to the impact of the epidemic, the capacity utilization rate fell to 37.80%, and the cost rate increased.
Investment advice. According to the general trend of prefabricated building applications, prefabricated PCs are the main application method, and there is plenty of room for development. As a leading domestic prefabricated PC enterprise, the company has leading production capacity and an information-based production management system. It has high production efficiency, high turnover and scale advantages to reduce production costs and expenses. Currently, there are sufficient orders. We expect the company's 21-22 EPS to be 0.90 and 1.23 yuan respectively, giving a price-earnings ratio of 20-25 times in 2021, with a reasonable value range of 18.0-22.5 yuan (based on the conversion of 1 RMB = 1.19 HK$1.19, target price of HK$21.42-26.78) for the first time, giving a “superior market” rating.
Risk warning. Repayment risk, business development risk, policy risk.