JPMorgan has issued a research report stating that China State Construction International (03311) saw its revenue and operating profit both fall 28% year-on-year in the third quarter of 2026, worse than the declines of 23% and 13% respectively in the first half, making it even harder for management to achieve its goal of roughly flat earnings for the 2026 fiscal year. The bank maintains its Underweight rating and a target price of HK$7.

The bank noted that third-quarter revenue fell 28% year-on-year to RMB 15 billion, with revenue including joint ventures also down 28% year-on-year. Operating profit including joint venture profits fell 28% year-on-year to RMB 2 billion, while operating profit for the first nine months declined 17% year-on-year. The bank believes the stock's relatively resilient recent performance may be due to market preference for dividends, but earnings downside risks are becoming increasingly apparent.

The bank pointed out that the weaker-than-expected third-quarter earnings further raise the magnitude of recovery needed in the fourth quarter, reducing the credibility of dividend support. Management remains relatively positive on Hong Kong, benefiting from Northern Metropolis funding and BOT/investment opportunities, and the outlook for modular integrated construction is also positive. Third-quarter cash flow continued to improve, but near-term evidence remains insufficient to offset earnings downside risks.

Northern Metropolis policy support has strengthened, with over HK$180 billion in public works funding already approved, but the timing and magnitude of its contribution to the company's revenue and earnings remain uncertain. Weak fixed-asset investment in mainland China continues to act as a drag. The bank has cut its 2026 fiscal year revenue forecast by 6%, and its net profit and earnings per share forecasts by 3%. Adjusted earnings per share are lowered from RMB 1.5 to RMB 1.45, implying a 11% year-on-year decline in 2026 fiscal year net profit to approximately RMB 8 billion. Even assuming a payout ratio at a historical high of 35%, the projected dividend yield for the 2026/27 fiscal years is only about 6%.

The bank maintains its target price at HK$7, equivalent to a 0.4 times forecast price-to-book ratio for the 2028 fiscal year, and believes the dividend return is insufficient to compensate for earnings risks.