Guosheng Securities: "The 15th Five-Year Plan" is about to be introduced. What investment opportunities might there be in the construction sector?

Guosheng Securities released a research report stating that the "15th Five-Year Plan" is about to be introduced, and the construction sector can focus on three major areas of investment opportunities: the industry is entering a stock era, urban renewal and demand for high-quality construction are expected to continue to grow. Among them, the penetration rate of prefabricated buildings is expected to continue to rise, and existing housing is expected to usher in a peak of testing; in the direction of new infrastructure, attention should be paid to low-altitude economy, energy, computing power infrastructure, etc.; with policy support, construction in the western region is expected to accelerate, focusing on strategic hinterland, Xinjiang, Tibet and other regions. The main points of Guosheng Securities are as follows: Direction 1: The industry is entering a stock era, focusing on urban renewal and high-quality construction By the end of 2024, China's urbanization rate was 67%, and urbanization has entered the middle and later stages of development (30%-70% is generally considered to be the rapid development range of urbanization); China's construction industry is entering a stock era. The industry predicts that under this background, overall investment in the construction industry will slow down, and urban development will shift from "outward expansion" to "inward development". In the future, the development of the construction industry is expected to focus on the existing market, driving a golden age of development in urban renewal, infrastructure operation and maintenance, testing and inspection, etc.; on the other hand, it will focus on high-quality construction to meet people's demand for green, low-carbon, smart and livable buildings, driving the continuous rise of industrialized, green and intelligent construction. Prefabricated buildings: The long-term development trend remains unchanged, with steel structures expected to show high prosperity. Prefabricated buildings are a long-term development trend in the construction industry. The underlying logic is that China's construction labor dividend is gradually disappearing, and the traditional extensive construction mode is unsustainable under the requirements of "dual carbon" development. In terms of labor, as of 2024, there were 299.73 million migrant workers in China, with construction migrant workers accounting for 14.3%, a decrease of 1.1 percentage points from the previous year. The number of construction migrant workers was 42.86 million, a significant decrease for three consecutive years, with a decrease of 12.72 million from 2021; in 2024, the average monthly wage of construction migrant workers was 5,743 yuan, and wages continued to rise, an increase of 26% from 2019. In terms of environmental protection, China's construction industry has long been developing in an extensive mode, blindly pursuing high economic growth without considering its impact on society and the natural environment. Data from the China Construction Industry Energy Conservation Association shows that the proportion of the total energy consumption of the entire process of construction in China to the total national energy consumption is 45.5%, and the total carbon emissions of the entire process of construction in China account for 50.9% of the total national carbon emissions (2020 data), indicating a huge space for energy conservation and emissions reduction in the construction industry. Prefabricated buildings can significantly reduce the demand for construction labor, improve the quality of building construction, reduce carbon emissions and energy consumption, and also deeply integrate distributed new energy and smart building systems, realizing the transformation of building greening. Therefore, during the "15th Five-Year Plan" period, China is expected to continue to promote the development of prefabricated buildings (previously planned targets include a domestic penetration rate of prefabricated buildings of 30% by 2025 and 40% by 2030). Among them, steel structure buildings are expected to have a higher assembly rate and possess higher green and low-carbon attributes compared to prefabricated PC structure buildings, and can be more easily integrated with distributed new energy and smart building systems. The proportion of steel structure buildings is expected to continue to rise. It is recommended to focus on the leading steel structure engineering company Changjiang & Jinggong Steel Building (dragon head of steel structure going abroad, with outstanding potential for high dividend yield), as well as the leading steel structure manufacturing company Anhui Honglu Steel Construction. Testing and inspection: The area of existing buildings continues to rise, and existing housing is expected to usher in a peak of testing. In recent years, the area of existing buildings in China has continued to increase (the bank calculates that by the end of 2024, the urban housing area is approximately 38.4 billion square meters), and the completion area has increased significantly during the upturn cycle of the real estate market from 2009 to 2019. Considering that the inspection cycle of houses is about 10-20 years, it is expected that existing housing will soon enter a peak period of testing (according to the census data, the proportion of houses built before 1990/1990-1999/2000-2009/2010-2020 accounted for 11%, 20%, 32%, and 37%, with an average house age of 20 years). In July 2023, the Ministry of Housing and Urban-Rural Development stated "exploring the establishment of a housing pension system," with the core goal of improving "sound housing safety management." In August 2024, the Vice Minister of Housing and Urban-Rural Development, Yu Guo, stated that research will be conducted to establish a housing physical examination system, a housing pension system, and a housing insurance system. By August 2025, cities such as Shenzhen, Qingdao, Chengdu, and Shenyang had issued policies requiring regular physical examinations for houses. With the increasing proportion of aged houses, the demand for testing of existing housing is expected to continue to grow. Assuming that housing regular physical examination policies are introduced nationwide, the bank estimates that the testing demand in the national existing housing market will exceed 20 billion yuan. It is recommended to focus on the leading companies in house testing, China Testing & Certification International Group, United Testing Inspection&Certification Technology, Shanghai Research Institute of Building Sciences Group, and the leading third-party engineering quality assessment company Shenzhen Ridge Technology (which has participated in several national self-built house safety special inspections and has established IDI-TIS business cooperation with leading property insurance companies such as PICC and Ping An). Direction two: The new era requires new infrastructure, focusing on low-altitude economy, energy, and computing power infrastructure Low-altitude economy: Policy support is increasing, with the front-end infrastructure demand expected to quickly increase. Since the inclusion of "low-altitude economy" in the government work report in 2024, a series of industry support policies have been introduced. Infrastructure (low-altitude digital systems, airspace route construction, take-off and landing point construction, etc.) as the basis for the industrial scale development is expected to see an increase in demand first. According to the Civil Aviation Administration, it is expected that by 2030, the scale of China's low-altitude economy will grow to 2 trillion yuan, corresponding to a low-altitude infrastructure market size of about 300-400 billion yuan based on a fixed investment proportion of 15%-20%. In December 2024, the State Council issued the "Opinions on Optimizing and Improving the Management Mechanism of Special Bonds for Local Governments," which clearly includes low-altitude economic-related infrastructure in the "positive list" of special bond capital, alongside emerging industries such as the digital economy, quantum technology, and commercial space. Currently, several provinces and cities, including Guangdong, Shandong, Anhui, and Sichuan, have issued special bonds related to low-altitude industrial parks, which are expected to provide financial support for large-scale low-altitude infrastructure projects. In April this year, the Central Political Bureau meeting proposed the establishment of new types of policy financial instruments. From recent work conferences in many regions, the amount of this round of funding may be around 500 billion yuan, mainly dedicated to new fields such as the digital economy, artificial intelligence, and low-altitude economy, which are expected to further untie funding bottlenecks, drive the acceleration of low-altitude infrastructure construction, and are recommended to focus on leading low-altitude planning and design companies Shenzhen Urban Transport Planning Center (deeply involved in the construction of the Shenzhen low-altitude industry, jointly launched the first low-altitude comprehensive management platform SILAS); pay attention to local state-owned low-altitude construction platforms Jsti Group, Anhui Transport Consulting & Design Institute, Shanghai Tunnel Engineering, etc. Computing power and semiconductor-related projects: The computing power wave drives capacity expansion, and CAPEX welcomes a new growth cycle. Benefiting from the development of AI, there is a continuous high demand for computing power globally, with AI chips, storage, advanced packaging, and other markets accelerating capacity expansion. According to guidance from TSMC, the company's AI business is expected to double on a high base by 2025, with a expected compound annual growth rate of about 40% over the next five years, making it a core driver of the semiconductor market's growth. From the perspective of production capacity planning, TSMC's CAPEX guidance for 2025 has increased significantly by 28%-41%, and industry leaders such as Semiconductor Manufacturing International Corporation, HUA HONG SEMI, maintain high CAPEX levels, while leading OEMs SK Hynix, Samsung, and Micron accelerate the expansion of HBM production (the mainstream storage chip for AI servers), with the industry's annual capital expenditure expected to reach 160 billion US dollars, and a 3% annual increase. In the medium to long term, the mainland market will benefit from domestic substitution drives, with the main companies' capital expenditures expected to continue to increase. In overseas regions, Southeast Asia, leveraging cost advantages, is accelerating the absorption of semiconductor production capacity transfers; the United States is restructuring its semiconductor manufacturing chain and providing subsidies and low-interest loans to multiple leading companies such as TSMC to support local production capacity building, leading to a strong demand for regional engineering. Cleanrooms, as important infrastructure to ensure the quality and safety of semiconductors, are expected to continue to grow in demand. The bank estimates that the global/China semiconductor cleanroom investment in 2025 is about 168/50.4 billion yuan, accounting for about 15% of the industry's total capital expenditure. It is recommended to focus on leading companies in quality semiconductor cleanrooms, L&K Engineering (98% in the electronic industry), Acter Technology Integration Group (67% in the IC semiconductor industry), and Both Engineering Technology (72% in the IC semiconductor industry). Energy: Controlled nuclear fusion continues to make positive progress, and technologies in the "15th Five-Year Plan" are expected to accelerate landing. Since the beginning of this year, China's controlled nuclear fusion has continued to make positive progress, with the EAST superconducting tokamak device achieving stable long-pulse high-confinement plasma operation at 100 million degrees Celsius for 1066 seconds in January; the new generation artificial sun "Chinese Circulating No.3" at the Southwest Institute of Nuclear Physics of China Nuclear Group achieved an atomic nucleus temperature of 117 million degrees and an electronic temperature of 160 million degrees for the first time in China in March; China Fusion Energy Co., Ltd. was formally established in Shanghai in July; and in October, the construction of the compact fusion energy experimental device (BEST) project made a key breakthrough. At present, the policy signals of China's controlled nuclear fusion industry are clear, device construction is accelerating, technological breakthroughs are frequent, and it is expected to accelerate landing during the "15th Five-Year Plan" period. It is recommended to focus on the leading Chinese nuclear power construction company, China Nuclear Engineering Corporation. Direction three: Key areas supported by policies, focusing on strategic hinterland, Xinjiang, Tibet and other regions National strategic hinterland: A new round of productivity and regional economic layout adjustments, the "15th Five-Year Plan" is expected to accelerate. In July 2023, the top leadership pointed out during an inspection in Sichuan that "Sichuan is a strategic hinterland for China's development and has a unique and important position in the national development overall, especially in implementing the strategy of large-scale development in the west"; in December 2023, the Central Economic Work Conference first proposed "optimized major productivity layout, strengthened construction of national strategic hinterland"; in January 2024, the State Council approved the "Land and Space Planning for Sichuan Province (2021-2035)", which clearly defines Sichuan as a strategic hinterland for China's development, a key region supporting the implementation of national strategies such as the large-scale development of the west and the development of the Yangtze River Economic Belt; in July 2024, the Third Plenum of the Twentieth Central Committee of the Party once again emphasized "building national strategic hinterlands and key industry backups". A series of policies show that China is accelerating the construction of national strategic hinterlands. The national strategic hinterland refers to non-core areas that support the achievement of national strategic goals. Since the founding of the country, China has implemented various strategies such as the Third Front construction, the Western Development, the Rise of the Central Region, and the Revitalization of the Northeast at specific times and under specific circumstances for national defense security or regional coordinated development. Currently, under the background of increased economic risks and uncertainties in international political and military conflicts in the Trump 2.0 era, the construction of national strategic hinterlands is a new round of adjustments in productivity and regional economic layout based on domestic and foreign situations and internal and external conditions, with the main significance being: 1) Defense against external shocks and safeguarding national security; 2) Further tapping the advantages of population and resources in the hinterland, improving the domestic economic circulation puzzle; 3) Balancing regional economic development patterns and narrowing the gap in residents' living standards. The urgency of constructing national strategic hinterlands is significantly increasing, and it is expected that top-level design plans related to strategic hinterlands will be introduced later, with comprehensive support in terms of policies, funds, etc., which will greatly drive the economic and investment growth in related regions. Sichuan Province has been clearly defined as a province and city of national strategic hinterlands, and the core recommendation is the southwest transport infrastructure leader Sichuan Road & Bridge Group. Xinjiang sector: Continuo()20256800020252027997/2077/23262025EPC2026Xinjiang Communications Construction GroupXinjiang Beixin Road & Bridge GroupXinjiang Xuefeng Sci-Tech;EPC Investment advice The "15th Five-Year Plan" is about to be introduced, and the construction sector can focus on three major areas of investment opportunities: 1) The industry is entering a stock era, focusing on urban renewal and high-quality construction. The penetration rate of prefabricated buildings is expected to continue to rise, and existing housing is expected to usher in a peak of testing. Key recommendations include the leading steel structure engineering company Changjiang & Jinggong Steel Building (25PE 14X) and the leading steel structure manufacturing company Anhui Honglu Steel Construction (25PE 21X). Focus on house testing leaders China Testing & Certification International Group (25PE 23X), United Testing Inspection&Certification Technology (25PE 43X), Shanghai Research Institute of Building Sciences Group (25PE 21X), and third-party engineering quality assessment leader Shenzhen Ridge Technology. 2) In the direction of new infrastructure, it is recommended to focus on and pay attention to the leading low-altitude planning and design company Shenzhen Urban Transport Planning Center, local state-owned low-altitude construction platforms such as Jsti Group, Anhui Transport Consulting & Design Institute (25PE 9X), and Shanghai Tunnel Engineering (25PE 7X). Also recommended are the leading companies in semiconductor cleanrooms such as L&K Engineering (25PE 16X), Acter Technology Integration Group (25PE 32X), Both Engineering Technology (25PE 30X), and the main force in nuclear power construction, China Nuclear Engineering Corporation (25PE 14X). 3) With policy support, construction in the western region is expected to accelerate, and it is recommended to focus on companies benefiting from the construction of national strategic hinterlands, such as the southwest transport infrastructure leader Sichuan Road & Bridge Group (25PE 9X). Also pay attention to Xinjiang communications construction leaders Xinjiang Communications Construction Group (25PE 33X), Xinjiang Beixin Road & Bridge Group, Xinjiang civilian explosives leader Xinjiang Xuefeng Sci-Tech (25PE 16X), and chemical engineering EPC leaders China National Chemical Engineering (25PE 7X), East China Engineering Science and Technology (25PE 18X), Shandong Sunway Chemical Group (25PE 17X), Changzheng Engineering Technology, etc. Risk warning: Policy releases are not as expected, development in various sub-sectors is not as expected, and depreciation risks, etc.