Construction Engineering How much does rising labor costs affect construction companies?

Rising labor costs are putting pressure on the profitability of construction companies. From the perspective of the whole industry, the proportion of labor costs in the total output value of construction in 2008 is, if the labor cost is **10%, without considering any compensation factors, the gross profit margin of the whole industry will decline significantly by one percentage point; From the perspective of the five major central enterprises, the proportion of direct labor costs in revenue is 4%-7% on average, and the labor cost is 10%, and the gross profit margin will drop significantly by one percentage point, dragging down the growth rate of net profit by one percentage point; However, considering that labor subcontracting accounts for a relatively high proportion of subcontracting costs among the five major central enterprises, the gross profit margin will be dragged down more by labor costs. In fact, the profitability of construction companies is more dependent on the economic cycle; In the context of raw material and labor costs, construction companies are more inclined to sign open contracts and cost-plus contracts to avoid their own risks. However, the successful implementation of the compensation clause will be more dependent on the macroeconomic cycle; If the macro economy is good and the owner has abundant funds, the greater the amount and probability of compensation for the construction enterprise, and the smaller the vice versa; Since 1991, the trend of the profit rate of output value in China's construction industry has been significantly positively correlated with the GDP growth rate. At the same time, under the background of labor costs, the gross profit margin of Japan's four major construction companies has remained stable since 1980, and only began to decline during the financial crisis in 2008; At the micro level, construction enterprises will also digest the cost pressure internally by improving the mechanization rate and management efficiency

From the perspective of per capita output value, the per capita output value of China's construction industry is only equivalent to the level of the United States in 1967 and Japan in 1977, and there is still a lot of room for improvement. From a micro point of view, the proportion of machinery use costs in China's construction enterprises has increased, and the management expense rate has declined significantly, and the efficiency of China's construction enterprises has been gradually improving.

Valuation and investment advice: At present, the annual PE of A-share construction companies is and times and times respectively, and the annual PE of H-share construction companies is and times respectively. We maintain a Neutral rating on the sector, but recommend investing in infrastructure companies that are defensive in the market correction phase and have stable short-term growth, including China Railway Construction, China Railway and Gezhouba.

c Answer Analysis:

The proportion of skilled labor force is a major factor in the formation of wage disintegration differences between industrial sectors. The higher remuneration of construction workers is due to the fact that the proportion of skilled electricians, carpenters, masons, pipemen, etc. in the labor force of this industry is relatively large, and the average wage level of the entire industry is also high due to the high remuneration of these workers.

Answer]: The proportion of skilled labor is an important factor in the formation of wage differentials between industrial sectors. The relatively high remuneration of construction workers is due to the fact that skilled electricians, carpenters, masons, plumbers, etc. account for a large proportion of the labor force in this industry, and because of the high remuneration of these workers, the average wage level of the whole cracked trousers industry is also high.