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    　　Investors are skeptical about the growth potential of the construction information technology (IT) market and the profitability of related businesses. In this report, our analysis of the products and financials of Trimble Inc's buildings and infrastructure business finds that there is long-term stable demand for digital solutions in the construction industry. In addition, we note that construction IT companies typically offer design, engineering, operation and maintenance solutions, and that companies providing a number of construction IT solutions can maintain solid profitability. For the outlook for Glodon, the current valuation reflects only the value of its cost estimating IT business, in our view. We think its current valuation is attractive, as the construction IT business will likely create become a second growth engine for the company.

    　　Reasoning

    　　Construction IT: A sizable market with notable growth potential; business opportunities in this market merit attention. The level of production efficiency in construction is lower than in many other industries, due to insufficient investment in IT, and we expect investment may increase markedly going forward. We estimate the size of the global construction IT market was about US$66bn in 2020, and that information and communications technology (ICT) investment in the US construction industry was about US$14.9bn in 2021.

    　　Construction IT: Dominates construction IT industry; US market is fragmented. We think the construction IT market is larger than the markets for construction IT products and services. We estimate that construction IT accounts for more than 50% of the ICT investment in the global construction industry. Construction IT companies provide software and hardware to meet demand from contractors, construction sites, and engineering employees. Microsoft, Oracle and other software companies have construction IT solutions, and some engineering companies have rolled out solutions. As a result, the construction IT market is fragmented, and a single firm cannot gain a high market share, in our view.

    　　Trimble: Construction IT businesses are likely to grow steadily, as evidenced by the growth of Trimble.

    　　Trimble began a strategic transition in 1998, seeking to mitigate the impact of competition in the global position system (GPS) market.

    　　The company entered the construction IT industry in 2007.

    　　The firm now offers construction IT solutions under the design, build and operate (DBO) model. Its solutions are utilized in every phase of engineering projects, since the firm provides software and hardware, and has acquired a handful of firms in the construction industry.

    　　Trimble's revenue and earnings have grown steadily. Revenue from the construction and infrastructure IT business has grown, and profitability remains solid, in our view. Given the firm's financial indicators, we think demand for construction IT is stable, and construction IT businesses enjoy solid earnings and visible growth potential.

    　　Glodon: The cost estimating IT business continues to grow; use of construction IT solutions to accelerate. We think the growth potential of the cost estimating IT business will increase with the transition to the cloud of IT products for cost estimating. Construction IT customers are shifting from the high turnover model to the delicacy management model, and the use of construction IT solutions will likely increase, in our view. In the short term, we estimate that revenue of the construction IT business will grow more by than 30% YoY in 2022 due to higher efficiency in delivering products. Longer term, we are upbeat on revenue and earnings of the construction IT business, and expect it to become the company's new growth engine.

    　　Financials and valuation

    　　We keep our earnings forecasts unchanged. The stock is trading at 44.7x 2023eP/E. We maintain an OUTPERFORM rating and a SOTP-based target price of Rmb70, implying 59.9x 2023e P/E with 34% upside.

    　　Risks

    　　The impact of the COVID-19 pandemic on the construction IT business is worse than expected; demand from downstream industries is weaker than expected.

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