According to analysis, the traditional investment cycle in the building materials sector is decelerating, with growth momentum shifting to emerging areas. It is believed that investment pressure will become increasingly evident in the second quarter of 2026, as local governments show weaker impetus for project advancement and companies focus on repairing their own financial statements. Looking forward, investment opportunities in specialized engineering sub-sectors are expected to be driven by central government-led "dual major" projects and the advanced manufacturing and technology fields.
Shenwan Hongyuan Group Co., Ltd.'s core views are outlined as follows: The year 2026 marks the beginning of the 15th Five-Year Plan period, serving as a critical transitional year. While annual fiscal funding is expected to maintain a certain intensity, there is a simultaneous emphasis on strict financial discipline and reinforced budget constraints. Consequently, local government investment is anticipated to become more cautious, with central "dual major" projects providing underlying support. During this process, certain construction sub-sectors are poised to experience sustained improvement in business conditions and a potential double boost to both earnings per share (EPS) and valuation multiples (P/E) as national major strategies are implemented.
Specialized Engineering Firms Poised to Grow with Emerging Sectors
The 15th Five-Year Plan outlines objectives for the construction sector, including expanding overseas, regional coordination, and new infrastructure. The "Six Networks" plan specifies concrete areas for investment and construction, with specialized engineering segments standing to benefit significantly. 1) The steel structure market is experiencing a confluence of domestic and external demand, presenting a current window for strategic positioning. 2) State Grid's investment plan for the 15th Five-Year period is proactive, with new-type power grids driving investment across the electricity industry chain, and the synergy between computing power and electricity generation opening new possibilities. 3) Geopolitical conflicts have elevated prices for resource commodities; against the backdrop of China's "rich coal, poor oil, scarce gas" resource profile, the pace of coal chemical projects is expected to accelerate. 4) Cutting-edge technologies, represented by AIDC (AI Data Centers), are likely to spur growth in related new infrastructure, increasing demand for cleanroom facilities. Throughout this shift, certain specialized engineering enterprises are expected to grow alongside these emerging sectors, thereby driving their own operational development.
Valuation Re-rating for Low-Valued, State-Owned Enterprises Trading Below Book Value
The assets of construction firms primarily consist of receivables, leading to some uncertainty regarding long-term cash flows and asset liquidity, which results in market valuation discounts. In recent years, the State-owned Assets Supervision and Administration Commission (SASAC) has emphasized the assessment of central SOEs' asset quality, focusing on value creation capabilities. Despite pressure on revenues and profits, companies have maintained stable dividend policies, with some clearing out risky assets, laying a foundation for sound development during the 15th Five-Year Plan period. The view is that the construction industry's role as a pillar of the national economy will remain unchanged. As companies continuously optimize their financial statements, asset quality is set to improve. This may lead to increased dividend payout ratios driven by enhanced cash flows, potentially triggering a valuation re-rating for low-valued central and state-owned enterprises.
Key risks include a slower-than-expected economic recovery, infrastructure investment falling short of forecasts, and listed companies securing fewer orders than anticipated.