Founder: How can state-owned investment reshape the landscape of the construction industry?

Founder releases research report stating that state-owned mergers and acquisitions in the construction industry are expected to drive industry cleansing, leading to improved business for target companies. It is recommended to pay attention to subsequent events in the industry and actively price existing mergers and acquisitions. Ningbo Construction (601789.SH) has seen improvements in financing costs, corporate governance, order structure, financial indicators, etc. after being invested by Ningbo Trading. Against the backdrop of state-owned mergers and acquisitions, it is recommended to actively monitor Long Yuan Construction Group's (600491.SH) state-owned investment process, subsequent pricing of the company, and other event changes within the industry. Key points from Founder: IPO tightening & policy support drive mergers and acquisitions, with state-owned enterprises playing a leading role. Since 2024, with IPO tightening, mergers and acquisitions have become a new financing channel for some companies. Various ministries and local governments have frequently issued documents to support corporate mergers and acquisitions. State-owned enterprises have better credit ratings and lower funding costs under the current background, making state-owned mergers and acquisitions a driving force for industry consolidation. State-owned mergers and acquisitions in the construction industry may bring about changes such as lower financing costs, business integration, and restructuring of the industry for private enterprises. State-owned enterprises play an important role in the construction industry. In the process of mergers and acquisitions of private construction enterprises by state-owned enterprises, state-owned enterprises can provide three directions of benefits to private enterprises, including improvement in financing, business integration, and industry restructuring. Ningbo Construction has seen significant business improvements after being invested by Ningbo Trading. In terms of transactions, Ningbo Trading acquired 29.92% of Ningbo Construction's equity in a single transaction in 2019 at a price of 4.25 yuan per share. After the transaction, CKH HOLDINGS, the financial director of a state-owned background, joined the board of directors. With the support of state-owned enterprises, Ningbo Construction successfully issued 21 bonds/bills with a total amount of 6.19 billion yuan. In terms of business, state-owned enterprises mainly imported orders, improved the company's business qualifications, and integrated and divided the company's business departments. Financially, after state-owned enterprises invested at the end of 2019, Ningbo Construction achieved positive revenue growth from 2020 to 2023. By 2023, compared to 2019, the financing cost decreased from around 6.4% to 4.5%, with financial expenses decreasing by approximately 0.7 billion yuan. In terms of stock price performance, the subsequent stock price remained higher than the transfer price of 4.25 yuan per share, reaching a peak of 8.62 yuan per share, realizing the preservation and appreciation of state-owned assets. Apart from importing traditional businesses, Long Yuan Construction Group also has room for imagination in emerging businesses. In 2023, Hangzhou achieved a fixed asset investment of 918.6 billion yuan, while Ningbo achieved 779.7 billion yuan. Being the provincial capital city, Hangzhou has a larger space for fixed asset investment. Furthermore, due to the company's historical business scale having approached 20 billion yuan, the company has the capability to operate large-scale construction projects. Focus on areas such as car roads, road operations and maintenance, low-altitude economy, and water conservancy construction. According to estimates, the biggest expense for smart road reconstruction in Hangzhou in the future could reach hundreds of billions, involving projects like smart intersections, smart parking spaces, and smart road construction. The company targeted for acquisition, Hangzhou Jiaotou, is a major implementing unit of the Hangzhou car road cloud project, and the company is expected to gain orders. Hangzhou Jiaotou owns approximately 898 kilometers of high-speed road assets in Hangzhou, with a future operational space of around 360 million yuan per year. Additionally, it is expected that Hangzhou plans to complete a water conservancy investment of 10 billion yuan by 2025, providing Long Yuan Construction Group with incremental business opportunities. Risk warning: Mergers and acquisitions may not be implemented as expected, increased competition risks, orders may not be landed as expected.