CICC has reaffirmed its 'Outperform Industry' rating for China State Construction International (03311). However, citing shifts in risk appetite within the Hong Kong stock market, the firm has reduced its target price by 13.9% to HK$11.63. This new target implies potential upside of 37.0% from the current share price and corresponds to a 2026/2027 estimated price-to-earnings (P/E) ratio of 5.7x/5.1x.

Due to intensified industry competition, CICC has lowered its net profit forecasts for 2026 and 2027 by 10.3% each, to 9.66 billion yuan and 10.49 billion yuan, respectively. The current share price is trading at 4.1x and 3.8x the estimated 2026 and 2027 earnings. The company's dividend payout ratio for 2025 was 35%, an increase of 1.9 percentage points year-on-year, resulting in a dividend yield of 7.4%.

China State Construction reported its 2025 financial results, with revenue reaching 100.45 billion yuan, a decrease of 4.6% compared to the previous year. Net profit attributable to shareholders was 8.59 billion yuan, showing a slight increase of 0.3%. Fourth-quarter revenue was 23.7 billion yuan, down 4.1% year-on-year, while Q4 net profit was 3.1 billion yuan, a decline of 4.6%. The overall performance fell short of CICC's expectations, primarily due to slower-than-anticipated revenue growth from the company's mainland China operations.

In 2025, revenue from mainland China operations decreased by 3.0% to 53.6 billion yuan, although the gross profit margin improved by 1.4 percentage points to 24.9%. Revenue from Hong Kong and Macau was 39.75 billion yuan (up 5.7%) and 3.39 billion yuan (down 57.8%) respectively. The gross profit margins for these regions were 3.7% (down 0.01 percentage points) and 22.7% (up 9.1 percentage points).

New contract signings in 2025 totaled 170.21 billion yuan, a decrease of 12% year-on-year. This pressure was partly attributed to a high base of comparison from 2024, which included a major 39.2 billion yuan contract for the expansion of the West New Territories landfill in Hong Kong. Despite this, the company's outstanding order book as of the end of 2025 stood at 364.68 billion yuan, an increase of 3% year-on-year, which is expected to support future revenue growth.

The company has strengthened the turnover of its investment business. Net operating cash flow for 2025 was 1.05 billion yuan, marking the fourth consecutive year of positive cash flow, with the cash collection ratio exceeding 100% for the first time. The asset-liability ratio was 71.4%, down 0.5 percentage points year-on-year, and the net gearing ratio was 68.5%, a reduction of 5.1 percentage points.

By focusing on shortening project investment cycles and concentrating investments in high-potential regions, the company is beginning to see improvements in both cash flow and profitability. Furthermore, the company maintains a technology-first strategy. In 2025, technology-driven new orders accounted for 50.1% of total new signings, a significant increase of 28.5 percentage points since 2021. Against the backdrop of steady progress in urban renewal initiatives, CICC is optimistic about the high-quality development opportunities presented by Modular Integrated Construction (MiC) for the company and expects continued enhancements in both profitability and asset turnover.