Guosheng: With the accelerated entry of insurance funds into the market, what other low-priced high-quality real estate targets are available for allocation?

Guosheng released a research report stating that the current policies are driving the increased allocation of insurance funds to the stock market, with a clear trend. Insurance funds have accelerated their entry into the market this year, with a significant increase in holdings in Q3. The bank analyzed that insurance funds in the construction sector prefer stocks with high ROE, high dividend yields, and low valuation (the largest holdings are Power Construction Corporation of China, Ltd (POWERCHINA/ China State Construction Engineering Corporation/Sichuan Road & Bridge Group), with Sichuan Road & Bridge Group having been acquired by China Post Life Insurance this week. Quality construction projects with these characteristics are expected to continue to receive increased allocation from insurance funds. The bank estimates that the insurance funds will allocate 28.6 billion yuan to the construction sector by 2026, accounting for 3.5% of the free float market value. It recommends key A-share stocks in the construction sector with low valuations and expected dividend yields exceeding 5% by 2026 include Sichuan Road & Bridge Group, Jangho Group, Changjiang & Jinggong Steel Building, Sinoma International Engineering, Shandong Sunway Chemical Group, China State Construction Engineering Corporation, and Anhui Construction Engineering Group Corporation. Key H-share stocks include CHINA STATE CON, CHINA COMM CONS, China Railway Construction Corporation, SINOPEC SEG, and CTF SERVICES. Under the continued development of AI, the global demand for computing power continues to grow, and the bank continues to be optimistic about semiconductor cleanroom leaders such as L&K Engineering, Acter Technology Integration Group, and Both Engineering Technology. Additionally, it recommends paying attention to the high-quality steel structure leader Anhui Honglu Steel Construction. Guosheng's main points are as follows: Insurance funds are entering the market at an accelerated pace, and high-quality low-priced construction targets are expected to continue to receive increased allocation. At the beginning of this year, the Central Financial Office, the China Securities Regulatory Commission, and other six ministries jointly issued the "Implementation Plan for Promoting the Entry of Medium and Long-term Funds into the Market"; in December, the Hong Kong Monetary Authority issued a "Notice on Adjusting the Relevant Business Risk Factors of Insurance Companies", which continues to drive insurance funds and other medium and long-term funds to allocate stocks. As of the end of Q3 2025, the balance of insurance funds invested in China was 37.5 trillion yuan, an increase of 10.5%. The funds invested in stocks/funds were 3.6/2.0 trillion yuan respectively, accounting for a total of 15.5%, an increase of 2.2/2.0 percentage points year-on-year/month-on-month. Since the beginning of this year, insurance funds have continued to increase their allocation to the secondary market, with a significant increase in Q3, and the trend of increased allocation by insurance funds to the secondary market is expected to continue. Regarding the construction sector, insurance funds held 8.52 billion yuan in construction stocks as of Q3 2025, accounting for 1.31%, ranking 15th among the 30 industries in CITIC Construction. According to our previous analysis, the three largest construction projects in which insurance funds were invested as of Q3 2025 were Power Construction Corporation of China, Ltd. (POWERCHINA/ China State Construction Engineering Corporation/Sichuan Road & Bridge Group, with market values of 29.0/21.5/13.7 billion yuan respectively, accounting for 75% of the insurance funds' investment in the construction sector. Insurance funds prefer stocks with high ROE, high dividend yields, and low valuations in their construction holdings. Sichuan Road & Bridge Group was acquired by China Post Life Insurance this week (accumulating a stake in Sichuan Road & Bridge Group exceeding 5%), indicating that high ROE, high dividend yield, and low valuation construction stocks are now a key focus of insurance funds, with this trend likely to continue. It is calculated that insurance funds will allocate 50.8/79.4 billion yuan to the construction sector in 2025/2026, with an increment of 28.6 billion yuan in 2026, accounting for 3.53% of the free float market value. It is assumed that the balance of insurance funds invested in China will increase by 16.5% in both 2025 and 2026 (ie maintaining the same year-on-year growth rate as at the end of Q3 2025), amounting to 38.7/45.1 trillion yuan. The proportion of funds invested in stocks can be referred to the proportion at the end of Q3 2025, assuming it will be 10.0%/11.0% in 2025/2026, respectively, resulting in 3.9/5.0 trillion yuan respectively. Furthermore, the overall proportion of funds invested by insurance funds in construction can be inferred from the proportion of insurance funds invested in heavily weighted construction stocks, taking into consideration the significant dividend yield advantage of the construction sector (with a median of 2.4% in 2024, significantly higher than the median of insurance fund investments at 1.3%). Therefore, it is believed that insurance funds may increase their allocation to the construction sector in the future, with the allocation proportions in 2025/2026 estimated at 1.31%/1.60% respectively. Based on this, it is estimated that insurance funds will allocate 50.8/79.4 billion yuan to the construction sector in 2025/2026, with an increment of 27.1/28.6 billion yuan, respectively. There are a group of stable, high-dividend, high-yield, undervalued targets in the construction sector, which are likely to continue to attract medium and long-term fund allocations. According to our calculations, key A-share construction companies expected to have dividend yields exceeding 5% by 2026 include Sichuan Road & Bridge Group (6.3%), Jangho Group (6.5%), Changjiang & Jinggong Steel Building (6.4%), Sinoma International Engineering (5.9%), Shandong Sunway Chemical Group (6.3%), China State Construction Engineering Corporation (5.4%), and Anhui Construction Engineering Group Corporation (5.9%); key H-share construction companies include CHINA STATE CON (7.2%), CHINA COMM CONS (6.0%), China Railway Construction Corporation (5.7%), SINOPEC SEG (5.7%), and CTF SERVICES (TTM dividend yield of 11.3%), which are expected to receive increased allocation from insurance funds in the future. The wave of computing power investment is driving capacity expansion, and cleanroom engineering is entering a new growth cycle. Benefiting from the development of AI, the global demand for computing power continues to grow, with the AI chip, storage, and advanced packaging markets expanding rapidly. According to TSMC's guidance, the company's AI business is expected to double on a high base in 2025, with an expected compound annual growth rate of about 40% over the next 5 years, and is expected to become a core driver of growth in the semiconductor market. In terms of capacity planning, in 2025, TSMC's CAPEX guidance is significantly increased by 28%-41%; leading companies such as Semiconductor Manufacturing International Corporation and HUA HONG SEMI maintain high CAPEX levels, while SK Hynix, Samsung, and Micron are accelerating the expansion of HBM production (the mainstream storage chip for AI servers), with industry capital spending expected to reach $160 billion for the year, an increase of 3%. In the medium to long term, the mainland market will benefit from the drive of domestic substitution, with leading capital expenditure expected to continue to expand. In the overseas region, Southeast Asia is accelerating the acceptance of semiconductor production capacity transfer based on cost advantages; the United States is rebuilding the semiconductor manufacturing chain layout, providing subsidy funds and low-interest loans to leading companies such as TSMC to support local capacity construction, resulting in strong regional demand for engineering. Cleanrooms are important infrastructure to ensure the yield and safety of semiconductors, with demand expected to continue to grow. It is estimated that global/China's investment in semiconductor cleanrooms in 2025 will be about 168/50.4 billion yuan, accounting for approximately 15% of the total industry capital expenditure. It is recommended to focus on high-quality semiconductor cleanroom leaders such as L&K Engineering (98% in the electronics industry), Acter Technology Integration Group (67% in IC semiconductors), and Both Engineering Technology (72% in IC semiconductors).