UBS stated in a research report that infrastructure is likely to continue serving as a key stabilizer for China's economy. However, given the high base effect, the bank expects infrastructure growth to be more structural rather than broad-based.

UBS anticipates easing growth pressures as the property market stabilizes and fiscal support becomes more effective. The bank has shifted its valuation base from 2025 to 2026 and maintains a "Buy" rating on CHINA RAILWAY (00390) and China Communications Construction (01800), primarily due to their high dividend potential, while keeping a "Neutral" rating on China Railway Construction (01186).

CHINA RAILWAY (00390) is preferred due to its exposure to the mining sector, which offers additional earnings and valuation leverage. However, UBS remains cautious about large state-owned construction firms, as their extensive business scope and high revenue base may lead to greater pressure on income and margins amid the ongoing property downturn and slow debt restructuring.

The bank forecasts that infrastructure fixed-asset investment (excluding utilities) growth will slightly recover from 0.4% in 2025 to 3% in 2026, with telecommunications, internet, and water conservancy sectors expected to see the highest year-on-year growth.

Public sector funding, particularly from the central government, is projected to provide stronger support in 2026. While moderate fiscal expansion may increase absolute funding flows into infrastructure, UBS does not expect aggressive or disorderly project launches, anticipating steady and measured growth instead.

During China's 15th Five-Year Plan period, infrastructure development is expected to align closely with national priorities, focusing on railways, water conservancy, cost-efficient logistics, energy, and urban infrastructure. Opportunities are also seen in AI, low-altitude economy, communication networks, and smart transportation/cities.

Western regions such as Tibet, Xinjiang, and Sichuan are likely to exhibit stronger growth momentum due to policy support and untapped potential, while coastal and southern areas may gradually recover as local debt pressures ease.

UBS has revised down earnings forecasts for state-owned contractors from 2025 to 2027, reflecting lower-than-expected 2025 earnings and 2026 outlook. However, target P/E multiples have been raised based on higher EPS growth expectations, mainly due to this year's lower earnings base rather than stronger intrinsic momentum.