CHINA STATE CON(03311) 国盛证券·2024-05-15 00:32Investment Rating - The report initiates coverage with a "Buy" rating for China State Construction International (03311.HK) [2] Core Views - China State Construction International is positioned as a leading player in the Hong Kong and Macau engineering sector, benefiting from the integration of the Greater Bay Area and the adoption of MiC technology for accelerated growth [1][6] - The company has shown resilience in maintaining steady growth despite macroeconomic disruptions and a downturn in the real estate sector, with a revenue and profit CAGR of 15% and 13% respectively from 2013 to 2023 [1][15] - The shift towards short-cycle investment projects, particularly GTR, has improved the company's cash flow and return on equity (ROE), which increased to 15.3% in 2023 [1][6] - The demand for modular construction (MiC) is expected to grow significantly, with government mandates in Hong Kong and mainland China driving adoption [1][6] - The ongoing push for affordable housing in China is projected to accelerate construction, with an estimated investment of 639.5 billion in 2024, benefiting the company's operations [1][6] - The integration of the Guangdong-Hong Kong-Macau Greater Bay Area is expected to enhance infrastructure demand, with significant investments planned for the region [1][6] Summary by Sections Company Overview - China State Construction International is the only Hong Kong and Macau engineering platform under China State Construction Group, having entered the mainland market in 2008 and focusing on investment projects [1][10] - The company has established a comprehensive business model integrating technology, investment, construction, and asset management, with operations in over 80 cities across 22 provinces [10][12] Business Structure - The company's revenue is primarily derived from mainland China, contributing 58% of total revenue in 2023, with government clients accounting for over 80% of its business [12][14] - The business segments include construction projects in housing and infrastructure, with a significant focus on investment-type projects [12][14] Financial Performance - The company has demonstrated robust financial performance, with a revenue of 113.7 billion HKD in 2023, reflecting an 11.5% year-on-year growth [4][16] - The gross margin for 2023 was reported at 14.4%, significantly higher than its peers, driven by the higher margin from investment projects in mainland China [16] Investment Strategy - The company has optimized its investment strategy by focusing on short-cycle projects, which has led to improved cash flow and a notable increase in ROE [1][6] - The MiC technology has positioned the company as a leader in prefabricated construction, with a market share of 40% in technology-driven projects [1][6] Policy Environment - The Chinese government's commitment to affordable housing is expected to drive significant investment in the sector, with a target of constructing 9 million affordable housing units during the 14th Five-Year Plan [1][6] - The integration of the Greater Bay Area is anticipated to create substantial infrastructure development opportunities, with projected investments of 675.8 billion HKD in 2023 [1][6]