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Shanghai Geoharbour is a leading enterprise in the field of soft foundation treatment. Its first high vacuum densification method (HVDM) has created a high invisible entry barrier, which, coupled with the first-mover advantage in venturing abroad, enabled its technologies, standards and brands to receive relatively high recognition overseas, especially in the Southeast Asian market, with significantly superior operation quality compared with traditional construction firms. Shanghai Geoharbour’s asset-light mode has greater upward flexibility in the industry uptrend. Benefiting from the relaxation of Covid prevention and control policies in Southeast Asian countries YTD in 2022, the Company starts to see orders ramping up in the short term, and its growth headroom in global market expansion is relatively broad in the medium and long term. Considering that its development has entered the stage of fast growth, plus high operation quality, we assign a market cap of Rmb6bn to derive a target price of Rmb35. We initiate coverage with a “BUY” rating.Over 20 years of soft foundation treatment experience with overseas business as the core. Shanghai Geoharbour takes soft foundation treatment engineering as its major business, the purpose of the treatment is to improve the shear strength and bearing capacity of the foundation, reduce the compression features of soft soil to meet the requirements of large-scale engineering construction. The principle is similar to making tofu to dried tofu after certain treatment. Since its establishment in 2000, the Company has been deeply engaged in this field for more than 20 years, and mainly targeted overseas markets. From 2018 to 2021, the overseas business contributed 82% of the total business, of which Southeast Asia market accounted for more than 50%. Soft foundation treatment: Sustainable demand which ramps up after the pandemic. Soft foundation treatment is one of the specific types of foundation treatment engineering, which is widely used for the construction of power plants, railways, highways, ports, airports, municipal projects, petrochemicals and land reclamation. The diversified downstream distribution effectively helps resist demand fluctuations brought by cyclicality, and makes its demand more sustainable than that of a single infrastructure sector (such as roads, railways, etc.). From the perspective of market space, we estimate that the global foundation treatment market size in 2021 was about US$36.5bn, equivalent to Rmb235.5bn, and it is likely to reach about US$72bn in 2030, while that of the soft foundation treatment will be smaller as being part of the foundation treatment. From the perspective of competitive landscape, there are three major leaders in overseas market, with a total global market share of about 12%, while the concentration of domestic enterprises is relatively fragmented, with four listed companies having a global market share of less than 3%. Companies show different features in regional competition, for example, the three overseas leaders own businesses across the globe, but mainly focus on Europe and the US markets, while the domestic listed companies except Shanghai Geoharbour have relatively small proportion of overseas business. In the short term, benefitting from the relaxation of Covid prevention and control policies in Southeast Asian countries, the suppressed demand for foundation construction in the past few years will likely accelerate to release, especially the major project of Indonesian capital relocation (with estimated total investment of US$31bn). In the medium and long term, as the economies of Southeast Asia, the Middle East and other regions will likely maintain steady growth, which makes relevant infrastructure construction indispensable, and the industry demand is likely to rise accordingly. Shanghai Geoharbour: Dual advantages of technology and market lead the Company to grow rapidly with high quality. In terms of technology, soft foundation treatment relies more on experience, rather than just leveraging a one-fit-for-all technology. In the past 20 years, the Company completed more than 100 large-/medium-sized geotechnical engineering projects at home and abroad and gained abundant experience especially for its own pioneering HVDM. According to Jiangxi Geo-Engineering Group, this method can save cost by about 30% and construction period by 50% compared with the conventional construction method, which has the advantages of environmental protection and controllable quality of construction, and forms a high invisible barrier. In terms of market, the Company took the lead to enter overseas markets including Southeast Asia, the Middle East and other regions as early as 2007-14 before the Belt and Road Initiative was proposed in China, and its technology and standards have been highly recognized by Southeast Asian countries and has accumulated a large number of brand projects. Currently, the Company is participating in the formulation of Indonesia’s national standards for foundation treatment. In terms of operating quality, compared with traditional construction companies, the Company’s profitability is more outstanding, and the situation of received project payment is significantly better than its peers, so it presents attribute as “light assets”, but not expanding driven by capital. In terms of personnel, soft foundation treatment focuses more on technical solutions to different projects, therefore, the number of personnel has relatively little constraint, and the Company owns high flexibility in expansion amid the increasing industry demand. Looking ahead, benefiting from the post-pandemic demand recovery in Southeast Asian and other countries, the Company will likely usher in high growth. The scale of orders in 1H22 has already exceeded the annual volume before Covid, and in the medium and long term, the Company has formulated a “three-step” market development plan of from Southeast Asia to Middle East, South Asia and Latin America to Africa. And it may continue to benefit from the demand ramp-up from the different stages of development in Southeast Asia, the Middle East and other regions. Potential risk: Weaker-than-expected demand due to global pandemic resurgences; slower-than-expected progress of major projects; exchange rate fluctuation; lower gross profit margin due to price war; uncollectible accounts receivable.Investment strategy: In the short-term, benefiting from the relaxation of Covid prevention and control policies, the Company’s major market in Southeast Asian countries has witnessed rapid ramp-up in orders, and with the gradual economic development in Southeast Asia, Middle East and other regions, the prosperity of foundation demand may trend upwards in the medium and long term. The Company has deeply cultivated overseas markets, especially in Southeast Asia, and its technology, standards and brands have been highly recognized. Under the guidance of the “three-step” strategy, we expect its future operation to enter a fast-growing stage. We forecast the Company"s attributable net profit (ANP) to be Rmb160mn/220mn/290mn, respectively, in 2022E/23E/ 24E, corresponding to 29.1x/21.2x/16.1x PE at the current price. We combine PE and PB valuation methods to derive a reasonable market cap of about Rmb6bn, equivalent to a target price of Rmb35, and initiate coverage with a “BUY” rating.【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

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