In late August, the stock prices of China’s four major infrastructure companies have collectively continued to plunge. Experts believe that this reflects the market no longer recognizing the future growth prospects and profit capabilities of Chinese infrastructure enterprises. Their semi-annual reports show negative operational cash flow and record-breaking net outflows, leading to the continuous decline in their stock prices.
Recently, the stock prices of China’s four major infrastructure companies – China Construction, China Railway Construction, China Electric Power Construction, and China Communications Construction have all suddenly entered a pattern of significant decline. China’s largest real estate construction contracting company, China Construction, saw a 1.95% drop in its stock price on September 4th; China Railway Construction’s stock price fell by 2.47%; China Electric Power Construction, the largest electric power facility construction company in China, experienced a 1.94% drop in its stock price; and China Communications Construction, another major infrastructure enterprise, fell by 1.05%.
Looking at the stock price trends of China’s four major infrastructure companies, the decline essentially started in late August. Major infrastructure stocks with names starting in “China” experienced significant declines, with China Railway Construction and China Communications Construction both falling. From August 26th to August 30th, China Construction accumulated a 4.94% decline.
A verified private fund manager named “LD Xiaomao” stated that the stock prices of China’s four major infrastructure enterprises started a collective steep decline from late August, with prices now breaking below the five-day average, forming a typical bearish pattern.
What signals are these phenomena sending?
He explained that fundamentally, it undoubtedly reflects the market no longer recognizing the future growth prospects and profit capabilities of Chinese infrastructure enterprises. It is well known that China’s rapid economic development since the “reform and opening up” era cannot be separated from massive infrastructure investment and construction. Especially with the 4 trillion yuan investment in 2008, China’s infrastructure reached its peak. Various regions launched various types of infrastructure construction projects.
“China Construction, China Railway Construction, China Communications Construction, and China Electric Power Construction are leading companies in their respective fields. But the negative impact of large-scale infrastructure is the soaring debts of various local governments. Many areas are burdened with debt, leading to debt restructuring becoming a top priority. Against this backdrop, it is almost impossible for regions to embark on large-scale infrastructure projects again. Therefore, leading infrastructure enterprises like China Construction are inevitably facing concerns about their future growth prospects.”
“LD Xiaomao” believes that the semi-annual reports of these infrastructure enterprises highlight severe corporate crises. This factor is likely the direct cause of the recent steep decline in the stock prices of these four major infrastructure companies.
Late August is generally the time when listed companies disclose their semi-annual reports. On August 30th, China’s construction giant, China Construction, released its 2024 interim report. In the first half of this year, the company achieved operating income of 1.1446 trillion yuan, a year-on-year increase of 2.81%; net profit attributable to the mother was 29.45 billion yuan, up 1.65% year-on-year; non-net profit was 26.95 billion yuan, up 1.95% year-on-year; and net cash flow generated from operating activities was -108.769 billion yuan, compared to -10.56 billion yuan in the same period last year.
“LD Xiaomao” pointed out that although China Construction achieved operating income of 1.14 trillion yuan in the first half of the year, a 2.81% year-on-year increase, and non-net profit of 269.5 billion yuan, a 1.95% year-on-year increase, the operational cash flow was a historical record net outflow of 108.769 billion.
“In the first half of the year, China Railway Construction reported operating income of 516.1 billion yuan, a negative growth of 4.6% year-on-year, non-net profit a negative 13.54% year-on-year, and operating cash flow net outflow of 81.68 billion yuan, hitting a recent historical high. China Electric Power Construction recorded an operating cash net outflow of 46.67 billion yuan, with China Communications Construction at -74.1 billion yuan, both reaching recent historical highs.”
“LD Xiaomao” emphasized that while the surface-level revenue and profits of these four major infrastructure enterprises may appear acceptable, the operational cash flow net outflows, reflecting the quality of profits, are all hitting recent historical highs. This indicates that these state-owned giants are making money on paper and not in their pockets, instead, substantial amounts are flowing out, acting as a lifeline for others.
“Cash is crucial for any enterprise, especially during these times of significant pressure on the Chinese economy. Cash flow is the lifeline, which has led to the recent collective decline in stock prices of China’s major infrastructure enterprises.”