Citibank: Lowering China Railway Construction's (01186) target price to HK$5.5 to maintain “buy” rating

The Zhitong Finance App learned that Citi released a research report stating that it maintained the “buy” rating of China Railway Construction (01186), lowered the target price of H shares by 21.4% to HK$5.5 from HK$7, and lowered the profit forecast for 2026 to 2027 by 27% to 32%.

Citi pointed out that China Railway Construction's revenue for the first half of the year was 428.4 billion yuan (same below), down 12.4% year on year; shareholders should account for net profit of 8.69 billion yuan, down 18.8% year on year; net profit after excluding special projects was 8.08 billion yuan, down 18.3% year on year. Gross margin increased 42 basis points year over year to 9.26%, and total sales and administrative expenses decreased by 1.8 billion yuan or 15.1%. The profit decline was mainly due to projects below the gross profit line, not gross profit itself.

Citi added that although revenue declined widely, gross margin remained stable in the first half of the year; construction revenue fell 10.7% year on year to 388.2 billion yuan, while overseas revenue rose 7.2% year on year to 39.8 billion yuan. Asset impairment losses increased by $1.86 billion year-on-year. Financial costs rose to $6.5 billion due to rising interest expenses and foreign exchange losses, mainly due to lower earnings expectations. The bank favors China Construction International (03311) in the infrastructure construction sector, followed by China Railway (00390), which is restricted by the US because China Railway construction is restricted.