CHINA STATE CONSTRUCTION ENGINEERING CORPORATION(601668)：INCREASED HOLDINGS BY CONTROLLING SHAREHOLDER HIGHLIGHTS CONFIDENCE IN GROWTH PROSPECTS

　　According to a recent announcement of China State Construction Engineering Corporation (CSCEC, the Company), China State Construction Engineering Group (CSCEG), the controlling shareholder of CSCEC, will increase its shareholdings in the latter through centralized bidding. The increased holdings will be no less than Rmb0.5bn and no　more than Rmb1bn, which demonstrates the controlling shareholder's　confidence in CSCEC's growth prospects and may boost confidence in the capital market. The demand of the construction sector is growing at home and abroad. We expect CSCEC to continue high-quality development. Reiterate the "BUY" rating.
　　CSCEG, the controlling shareholder of CSCEC, intends to increase holdings in the Company.
　　According to CSCEC’s announcement on Oct 19, 2023, based on confidence in its growth prospects and recognition of medium- and long-term investment value, its controlling shareholder CSCEG plans to increase shareholdings in CSCEC through centralized bidding. Within six months from the date of announcement, CSCEG will use self-owned and self-raised funds to buy Rmb0.5bn-1bn worth of CSCEC's shares. As of the announcement date, CSCEG held 23,631mn shares of CSCEC, accounting for 56.37% of the total issued share capital of the Company.
　　The investment amid downbeat market sentiment shows confidence in CSCEC's prospects.
　　Market sentiment was downbeat recently, as further recovery of the macro economy is yet to be seen and investors are bearish on the construction sector. Against such a backdrop, the controlling shareholders of several central state-owned enterprises (SOEs) in the construction sector bucked the trend to increase investment in their listcos, aiming to boost the confidence of the capital market. On Oct 16, 2023, China Railway Construction Group (CRCG) announced that it planned to increase its shareholdings in China Railway Construction Corporation (CRCC) by no more than Rmb300mn. On Oct 17, 2023, China Power Construction Group bought 34,466,700 A-shares of Power Construction Corporation of China (PowerChina), demonstrating the confidence in the latter's long-term growth prospects. CSCEC also has stable fundamentals. According to the Company's operational data, the total amount of new contracts maintained double-digit YoY growth in 9M23; hereinto, new contracts for infrastructure construction increased by 16.2% YoY on a high 2022 base. New contracts increased by 63.93% YoY in Sep 2023 alone, indicating that the overall downstream demand remains strong.
　　CSCEC benefits from the steady growth of infrastructure and improving real estate environment domestically, as well as boosts from the Belt and Road Initiative (BRI) overseas.
　　Domestically, thanks to the boom of high-end "new construction projects" (eg high-tech industrial plants), the recovering demand of the real estate sector amid the gradual landing of policies, and the stable performance of the　　infrastructure construction market in YTD 2023, CSCEC shows obvious competitive advantages, as its business scope convers both real estate development and infrastructure construction. Going forward, the Company may benefit continuously from the steady growth of infrastructure construction and the landing of real estate policies. Overseas, the Third Belt and Road Forum (BRF) for International Cooperation successfully concluded on Oct 19, 2023. At the opening ceremony of the Third BRF, Chinese President XI Jinping announced eight major steps China would take to support the joint pursuit of high-quality Belt and Road cooperation. The first step involves infrastructure construction-building a multidimensional Belt and Road connectivity network. Infrastructure cooperation has always been a window for deepening cooperation and connectivity between China and BRI participating countries in various fields. The statistics of the Ministry of Commerce show that in 8M23, Chinese enterprises signed Rmb725.35bn (+5.6% YoY) worth of new engineering contracts with BRI participating countries, and completed a turnover of Rmb529.52bn (+4.8% YoY). As a leader of China's construction sector that vigorously expands business footprints overseas, CSCEC may benefit continuously from order increments brought by Belt and Road cooperation to continue its high-quality development.
　　Potential risks:
　　Impairment losses resulting from real estate credit crunch; disappointing growth of investment in real estate and infrastructure; CSCEC's order- revenue conversion falling short of expectations; CSCEC's cash payback missing expectations; and disappointing implementation of the controlling shareholder's overweight plan.
　　Earnings forecast, valuation and rating:
　　Considering CSCEC's outstanding capacity in signing new orders and sufficient backlog orders, and based on expectations for policy continuity in stabilizing the growth of infrastructure construction and the further optimization of real estate policies, we maintain EPS forecasts of Rmb1.28/1.37/1.48 for the Company, with the latest share price corresponding to 4.0x/3.8x/3.5x PE in 2023E/24E/25E. With 5x-8x 2023E PE (Wind consensus estimates) of comparable companies China Railway Group (601390.SH), China Communications Construction (601800.SH) and Metallurgical Corporation of China (601618.SH) as a reference, considering CSCEC's competitive status in the construction sector, we assign the Company 6.5x 2023E PE, which corresponds to a market cap of Rmb347.9bn. Considering CSCEC's engineering business and real estate development business, based on Wind consensus estimates, with the 0.65x- 0.85x 2023E PB of comparable construction companies China Railway Group (601390.SH), China Communications Construction (601800.SH) and Metallurgical Corporation of China (601618.SH) and the 0.75x-0.95x 2023E PB of leading real estate developers Poly Developments (600048.SH) and China Vanke (000002.SZ), we assign the Company 0.8x 2023E PB, which corresponds to a market cap of Rmb341.6bn. Based on the above PE and PB valuations, we estimate the Company's 2023E fair market cap to be Rmb345bn, derive a target price of Rmb8 and reiterate the "BUY" rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。