Recently, frequent implementation of affordable housing support policies has created huge market potentials for prefabricated and green buildings. Market analysis pointed out that PC component manufacturers in the prefabricated construction supply chain will be key beneficiaries from these new policies.

As the most preferred brand in the prefabricated construction industry for three consecutive years, Broad Homes (02163.HK) will likely benefit from the recent policy catalysts. To highlight, the Company operates in both to-B and to-C business under its dual mode business model, which gives the Company potential to grasp onto a larger market share in this industry uptrend.

First and second tier cities are actively responding to affordable housing policies.

According to market data, since the beginning of December 2021, the Prefabricated Building Index (931020) rose nearly 10%, driven by discussions during the Politburo meeting in December to further promote construction of affordable housing.

Similar discussions also took place during the Central Economic Work Conference, indicating growing interest from high-level officials.

In the past year, affordable housing support policies have been frequently issued. The Politburo meeting mentioned the promotion of affordable housing construction for the first time in April and again in December.

In addition, in July, the Politburo discussed the need to accelerate rental housing development and implemented supporting policies surrounding land usage and taxation.

During the Central Economic Work Conference in December, discussions surrounding the need to “accelerate the development of the long-term rental housing market, promote the construction of indemnificatory housing, support the commercial housing market and better meet reasonable housing needs of buyers” were highlighted.

Huachuang Securities pointed out that both the Politburo meeting and the Central Economic Work Conference have prioritised affordable housing before commercial housing, reiterating high-level officials’ focus on affordable housing.

In terms of specific development goals, the Ministry of Housing and Urban-Rural Development issued the “Notice on the Monitoring and Evaluation of the Development of Affordable Rental Housing in 2021” in November 2021.

The notice outlined that during the “14th Five-Year Plan” period, the supply of affordable rental housing will be largely increased, and the proportion of new affordable rental housing to total new housing supply is targeted to reach 30% or more.

Meanwhile, key first and second tier cities have responded actively to recent policies and announced relevant targets for affordable housing construction during the “14th Five-Year Plan” period.

Among them, Beijing, Shanghai, Shenzhen set targets of over 45% for new affordable housing to total new housing supply.

The affordable housing industry is one of the most important application areas for prefabricated buildings.

Therefore, the acceleration and expansion of the affordable housing market will generate growing demand for prefabricated buildings.

According to Huachuang Securities’ estimates, the annual new construction area of 123 million sqm corresponds to RMB 446.3 billion in affordable housing related investments, indicating huge volume growth in the affordable housing sector.

Considering part of the growth will be hindered by the impact of fluctuations in real estate regulations, the proportion of prefabricated buildings to new construction buildings will continue to increase, benefiting industry leaders in the prefabricated construction sector.

Prefabricated buildings is the most optimal method of construction under the “dual carbon” targets

Prefabricated building refers to the use of modern manufacturing, transportation, installation and scientific management of production in replacement of traditional production where manufacturing process is more scattered, offers lower quality and efficiency, and requires intensive human labor.

The key characteristics of prefabricated construction is standardisation of architectural designs, industrialization of component production, mechanisation of construction, and scientific organisation and management. These include residential buildings produced through prefabricated construction methods.

There are two reasons to support why prefabricated buildings best fit affordable housing demands.

Firstly, prefabricated construction method significantly shortens the construction period. Time-saving is the key advantage of prefabricated buildings because early delivery corresponds to earlier collection of rent.

According to Everbright Securities’ estimates, assuming rental price of affordable housing is RMB40 per sqm per month, saving 9 months of construction period would correspond to a total cost savings of RMB360 per sqm.

Secondly, prefabricated buildings help reduce environmental burden throughout the construction process. Different from traditional construction methods, prefabricated construction reduces manual operation and on-site wet construction, and incorporates digitally integrated technologies to support the modernisation, intelligence, and other green construction characteristics.

Prefabricated buildings also best fit the low-carbon building criteria for affordable housing. The “dual carbon” target acts as an important requirement for construction projects and helps guide the industry towards adopting more green methods of construction.

Founded in 2006, Broad Homes is the largest manufacturer of PC components and PC production equipment in China. In November 2010, Broad Homes was listed on the HKEX and is also the first company to IPO in the prefabricated construction sector.

According to Broad Homes’ 2021 Interim Results, the Company’s PC component revenue increased 12.4% YoY to RMB1.138 billion; PC production equipment business increased 306.6% YoY to RMB221 million.

The increase in revenue is driven by market expansion and growing demand of PC components.

As the pioneer and leader of China’s construction industrialisation, Broad Homes adheres to green development. Guided by the “14th Five-Year Plan” and 2035 targets, the Company aims to continuously improve the quality and efficiency of industrialised production, better serve the need for green and low-carbon development in rural areas, and explore innovative ways to promote the construction of affordable housing.

Broad Home’s innovative prefabricated product development maximizes time value saved from early delivery.

It is worth noting that, in addition to the PC component business on the to-B end, Broad Homes also launched products on the to-C end in the second half of 2021.

The three products from the to-C business are highly standardised and fully assembled buildings, including PC high-rise buildings, B-Homes(fully assembled, low-rise/multi-story buildings), and BOX modules.

These products are characterised by their short construction period. It is reported that the multi-story, fully-assembled B-Homes’ main body can be completed in 8 days and delivered with fine decoration within 100 days. This breakthrough in quality and efficiency truly allows the productization of buildings.

Broad Homes noted that the Company has accumulated years of experience through their B-Home business and will bring positive synergy to the new BOX Module product.

The amount of new contracts from BOX Module shows that the product is already gaining market traction with the price of fully-prefabricated buildings being lower than cast-in-place buildings.

With many projects in the pipeline, the Company will continue to explore innovate application areas for prefabricated buildings.