Xiaomo: Downgrade China Construction International (03311) rating to “reduce holdings” and reduce target price to HK$7

The Zhitong Finance App learned that J.P. Morgan Chase released a research report stating that the China Construction International (03311) rating was downgraded from “neutral” to “reduced holdings”, and the target price was lowered from HK$8 to HK$7, based on the 2028 forecast market account ratio of 0.4 times. Although management maintained a 35% dividend ratio, the interim dividend was reduced year-on-year to HK33 cents per share due to falling profits, and dividend support was insufficient.

Xiaomo pointed out that China Construction International's performance in the first half of this year fell far short of expectations. Net profit after tax fell 18% year on year to 4.3 billion yuan, lower than management's steady growth guidelines at the beginning of the year, and also significantly lower than investors' expectations. Revenue during the period fell 23% year on year to 43.9 billion yuan. Although gross margin increased 3.6 percentage points year over year to 18.6% year over year, this was not enough to make up for the sharp decline in revenue. All major markets experienced significant declines: Mainland China fell 21% year over year, Hong Kong fell 25%, Macau fell 8%, CSC Development fell 22%, and joint venture profits fell even 63%.

According to the report, although management stated at the results meeting that the annual profit would be the same as last year, this meant that the profit for the second half of the year would need to increase by about 28% year-on-year. Considering historical seasonal factors, weak overall business, weakening demand for infrastructure in the mainland, and the slowdown in backlog order conversion, the bank believes that it is extremely difficult to achieve. The company's profit has not increased in the past two years. The first half of this year only accounted for half of the full year's profit, and the year-on-year decline was still 18%. The momentum for profit recovery was clearly insufficient. Motong lowered the average net profit forecast after tax from 2026 to 2028 by 10%, and the expected return on equity fell to about 10%.