Haitong: Pressure in the construction industry has already emerged, looking forward to policy changes.

Haitong releases research report, saying industry pressure has emerged, hoping for policy changes. The industry's business environment continues to face pressure, with the stability of large construction central enterprises becoming more prominent; meanwhile, the State-owned Assets Supervision and Administration Commission and the China Securities Regulatory Commission are jointly promoting the inclusion of market value in the assessment system for central SOEs, with the valuation of construction central SOEs expected to rise. Key points from Haitong are as follows: Liu Shijin: It is suggested that an economic stimulus scale of no less than 10 trillion yuan be formed in the next two years. On September 21, the China Macro Forum (CMF) held its third quarter forum for 2024. Liu Shijin, former vice director of the Development Research Center of the State Council, suggested at the forum that an economic revitalization plan incorporating a package of stimuli and reforms should be launched to drive the economy back to an expansionary growth trajectory. Liu Shijin believes that the reform measures for urban-rural integration development adopted at the Third Plenum of the 20th CPC Central Committee should be implemented, mainly through fiscal policy closely coordinated with demand-side structural reforms, resulting in a comprehensive effect of boosting consumption, stabilizing growth, and preventing risks. Liu Shijin suggests that special ultra-long term national bonds be the main source of funds, forming an economic stimulus scale of no less than 10 trillion yuan within one to two years. Industry pressure has emerged, hoping for policy changes. In H1 2024, the revenue growth rate of the construction industry decreased by 10.06% to -3.58%, with a Q2 single quarter revenue decrease of -7.82%; in H1 2024, the cash flow generated from operating activities in the construction industry amounted to a net outflow of 511.628 billion yuan, a 120.0% increase in net outflow. We use the index ((inventory + accounts receivable and notes receivable + other receivables + prepayments + long-term receivables + contract assets + other non-current assets - notes payable and accounts payable - other payables - advances received - contract liabilities - other non-current liabilities)/income) to indirectly reflect the financing pressure of enterprises (basically, the proportion of funds that need to be advanced to achieve this scale of income). Overall, the average financing ratio of the eight major construction central enterprises was at a historical high in 2023, rising by 1.57 percentage points from the peak in 2014 (19.03%). The monthly and year-on-year increases in the issuance of special bonds have both risen, and the on-site fund utilization rate has improved for four consecutive weeks. Regarding the issuance of special bonds: the local government issued a total of 174.724 billion yuan in special bonds this week (9/16-9/20), decreasing by 6.68% on a weekly basis; the total issuance of special bonds for this month (9/1-9/20) amounted to 361.953 billion yuan, a 29.54% increase compared to the same period in August, and a 119.82% increase year-on-year. In terms of fund utilization rate: as of September 17th, the on-site fund utilization rate of construction sites increased by 0.21 percentage points to 62.52% on a weekly basis, marking the fourth consecutive week of improvement compared to the end of August, with an increase of 0.52 percentage points. Market review summary: The construction engineering index rose by 1.91% this week (2024.09.16-2024.09.20), while the Shanghai Composite Index rose by 1.21% during the same period; from the beginning of 2024 to the present, the construction index has accumulated a decline of 16.48%, ranking 11th out of 29 industries, while the Shanghai Composite Index has fallen by 8.00% during the same period. Breakdown by sectors, all sub-sectors rose this week, with the real estate construction sector showing the largest increase at 2.66%, followed by the steel structure, infrastructure, and professional engineering sectors with increases of 2.50%, 1.94%, and 1.78% respectively. Other sectors such as decoration, chemical engineering, international engineering, engineering consulting, petroleum engineering, and landscaping saw increases of 1.30%, 1.26%, 1.11%, 1.04%, 0.83%, and 0.33% respectively. Risk warning: The growth stabilization policies may not meet expectations, and the risk of delays in the implementation of new energy projects.