Reportedly, the Chinese central government will issue an additional 1 trillion yuan in treasury bond in the fourth quarter of 2023. Upon this announcement, the capital market buzzed with excitement. The purpose of this additional issuance of special treasury bonds is to focus on supporting post-disaster recovery and reconstruction, as well as addressing deficiencies in disaster prevention, reduction, and relief, thereby enhancing the ability to withstand natural disasters.
What significant implications are associated with China’s issuance of one trillion yuan in treasury bonds?
This decision is expected to stimulate further investment in the infrastructure sector, thus providing momentum for economic recovery. For the consumption of construction materials and plastic piping segments, it signifies increased demand in areas such as the expansion of urban drainage networks, sewage treatment pipeline construction,natural gas transmission system upgrade, and the development of underground utility tunnels. This, in turn, creates additional opportunities for companies within the related industry chain, such as LESSO.
The main purposes of issuing these Chinese treasury bonds include post-disaster recovery and reconstruction, essential flood control projects, increasing emergency response capacity for natural disasters, other major flood prevention initiatives, irrigation system construction and upgrades, critical soil erosion control projects, efforts to improve urban drainage and flood prevention capabilities, and the development of comprehensive systems for disaster prevention.
The extensive infrastructure-related industry chain will benefit significantly.
Over the past years, China’s plastic pipeline industry has seen consistent growth, which will drive the future development of related companies. Data shows that from 2000 to 2010, plastic pipes gradually replaced some metal and cement pipes, entering a period of rapid growth with an annual compound growth rate of nearly 30%. Furthermore, stimulated by the “four trillion yuan” policy in 2008, the plastic piping industry experienced a phase of rapid expansion.
At present, China boasts thousands of large-scale plastic pipe manufacturers, collectively possessing an annual production capacity exceeding 30 million tons. Among them, approximately 300 companies maintain a yearly production capacity of over 10,000 tons, and more than 20 companies surpass the 100,000-ton mark. However, as urbanization rates taper off, the plastic pipe industry is undergoing notable transformations, with leading companies taking center stage.
As a leading enterprise in the plastic piping industry, LESSO has garnered significant attention from the capital market. Data reveals that over the past three years, the company has consistently held about a 20% market share in the plastic pipe market and nearly a 26% share in China’s PVC pipe market. With over 30 advanced production bases and a nationwide distribution network, LESSO is poised to directly benefit from China’s issuance of trillion-yuan bonds. The company currently offers a comprehensive range of piping products, ensuring complete coverage in water supply, drainage, power communication, gas, fire fighting, and other sectors. In 2022, LESSO achieved sales of 2.39 million tons, and as of the first half of 2023, the company’s annual capacity reached 3.21 million tons.
Estimates indicate that, given LESSO’s prominent position in the B2B sector and its substantial revenue contribution from the plastic pipe industry, particularly in municipal engineering, plastic pipe sales are projected to reach 2.77/3.03/3.22 million tons for the years 2023 to 2025, with year-on-year growth rates of +15.8%/+9.3%/+6.4%, respectively. Industry experts anticipate that, buoyed by the infrastructure development potential within the context of ‘stable growth,’ LESSO will capitalize on its robust brand, scalability advantages, market leadership, and extensive production and distribution network to accelerate market share expansion and solidify its dominant position.
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