Incident: Announcements related to the Longyuan Construction Update and Growth Series. The core change is the adjustment of the scale of capital raised. The number of shares issued was adjusted from 458,927,386 shares to 458,182,969 shares (a decrease of about 0.744 million shares), and the amount of capital raised was adjusted from RMB 1,849,477,365.58 to RMB 1,846,477,365.07 (reduction of about 3 million yuan). Previously, Hangzhou Trading had obtained 8.40% of the company's shares through an agreement transfer. After the transaction is completed, Hangzhou Trading will hold 29.51% of the company's shares and become the largest shareholder.

Longyuan Construction's fixed increase plan has changed little compared to the previous version, and is expected to pass the review in the near future. The company's fixed increase action project type is refinancing, but it is essentially a merger, acquisition and restructuring. It is currently in the “awaiting review results” stage after the inquiry and response from the Shanghai Stock Exchange. According to dynamic information on the fixed increase process of other companies on the Shanghai Stock Exchange's official website, the time for the fixed increase to land after the Shanghai Stock Exchange's inquiry received a response from the company ranged from one day to several months. For example, Chenfeng Technology's fixed growth plan was approved by the Shanghai Stock Exchange the day after the update was updated. Considering that the revised draft of the Longyuan Construction Project has undergone a long period of review before, the parties involved in the additional project have undergone a long period of review. Clear, using state-owned assets Leading, we believe the plan is expected to be reviewed in the near future.

Earlier, Longyuan Construction issued a 2024 performance forecast, and achieved net profit of -0.4 billion yuan to -0.6 billion yuan in 2024, a sharp reduction in losses compared to the same period last year. Looking at a single quarter, the net profit range for 24Q4 was -0.084 billion yuan to -0.284 billion yuan, which will significantly reduce losses from -0.733 billion yuan in 2023Q4/-1.311 billion yuan for the whole of 2023. The company's revenue/order volume did not recover significantly in 2024, but in the context of 8.4% state-owned shares, expenses have been partially reduced during the period, leading to a reduction in losses. We expect further implementation of fixed growth, and the company is expected to turn losses into profits in the future.

Converting bonds reduces asset impairment expectations & reduces interest expenses, and is expected to improve PB. ① The company's PPP assets are about 34 billion yuan, and the depreciation loss has been reduced by more than 0.8 billion yuan (as of 24H1). From the beginning of 2025 to March 8, the amount of special debt replacement bonds issued in various regions exceeded trillion yuan. Debt swaps will directly enhance the government's ability to pay and reduce current and future asset impairment expectations. ② After improvements on the investment and asset side of the Hangzhou Stock Exchange, the company's capital pressure will ease, and financing costs may drop drastically. The company's financial expenses in 2023 are 1.5 billion yuan, and the financing cost ratio is 6.94%. For every 100 bps reduction, interest expenses can be reduced by 0.216 billion yuan.

With few on-hand orders, the business is undervalued, and Hangzhou Jiaotong mainly invests to open up room for imagination in the main business. We estimate that the total number of orders in hand by the end of 24Q3 was 8.705 billion (23-year revenue 9.004 billion), and the business-level valuation is low. According to the updated series of announcements, in December 2024, Longyuan Construction received a series of local orders in Hangzhou through Hangzhou Trading, such as Hangzhou West Railway Station Hub Road Project Section II (177.13 million), Hangzhou West Railway Station Hub Double Rail Area North Evacuation Channel Project (Phase I), Section II (156.58 million), and Qinglong Road Road Project (90.07 million). After the planned expansion and implementation, the company will become the only state-owned listing platform with premium general construction contracting qualifications in Hangzhou, opening up project space in Hangzhou and overseas.

Profit forecasting and valuation: The company is about to grow and land, focus on valuation repair logic in the short term, and look forward to business growth space in the medium to long term. Overall, the company's revenue for 2024-2026 is 9.67 billion yuan/11 billion/ 16.15 billion yuan, maintaining a “highly recommended” rating.

Risk warning: There is a risk of uncertainty about the fixed increase of Hangzhou Trading; project introduction falls short of expectations; risk of capital shortage; debt implementation falls short of expectations; infrastructure investment falls short of expectations