Shenwan Hongyuan Group Co., Ltd. released a research report indicating revenue and profit pressure alongside improved cash flow, maintaining a "positive" rating for the construction and decoration industry. Infrastructure investment continued to face certain pressures in H1 2025. Against this backdrop, companies proactively scaled back operations, focusing on cash collection and cost management. This affected some large construction enterprises with year-over-year revenue declines, though operating cash flow showed improvement trends. Looking ahead, the firm believes that under external environmental pressures, domestic investment stimulus expectations remain strong, with "dual priority" projects led by central fiscal policy expected to accelerate. Companies are also strengthening internal management and streamlining costs. Revenue data recovery is anticipated in H2 2025 with further cash flow improvements.

**H1 2025 Construction Industry Revenue and Profit Under Pressure**

Major listed construction companies achieved total operating revenue of 3.75 trillion yuan in H1 2025, down 5.7% year-over-year, with net profit attributable to shareholders of 87.5 billion yuan, declining 6.5% year-over-year. Q1/Q2 2025 quarterly operating revenues were 1.84 trillion yuan and 1.91 trillion yuan respectively, representing year-over-year changes of -6.2% and -5.2%. Net profits attributable to shareholders were 44.4 billion yuan and 43.1 billion yuan respectively, with year-over-year changes of -8.8% and -3.9%. Overall, construction company revenues and profits faced pressure in H1 2025, related to companies' proactive deceleration of scale growth based on market conditions, focusing on asset quality improvement.

**H1 2025 Industry Gross Margin and Net Margin Relatively Stable**

The industry gross margin was 9.9% in H1 2025, down 0.2 percentage points from the same period last year, with net margin at 2.33%, down 0.02 percentage points year-over-year. By quarter, Q1/Q2 2025 gross margins were 9.1% and 10.7% respectively, down 0.1 and 0.3 percentage points year-over-year. Quarterly net margins attributable to shareholders were 2.41% and 2.26% respectively, with year-over-year changes of -0.07 and +0.03 percentage points. The relatively stable industry gross and net margins in H1 2025 primarily reflected companies' strengthened cost management and reduced expenses and impairment scales.

**H1 2025 Operating Cash Flow Improved**

Industry operating cash flow net amount was -477.4 billion yuan in H1 2025, representing 15.1 billion yuan less outflow year-over-year. By quarter, Q1/Q2 2025 construction companies' quarterly operating cash flow net amounts changed by -10.3 billion yuan and +15.1 billion yuan year-over-year respectively. Q1/Q2 2025 cash collection ratios were 103% and 87% respectively, with year-over-year changes of +0.85 and +11.65 percentage points. Cash payment ratios were 123% and 91% respectively, with year-over-year changes of +1.00 and +13.98 percentage points. The firm believes that benefiting from local government debt resolution policies and companies' strengthened cash flow control, industry operating cash flow improved year-over-year in H1 2025, though continued attention to subsequent debt resolution and fiscal fund deployment remains necessary.

**H1 2025 Industry ROE Down 0.31 Percentage Points Year-Over-Year**

Industry overall ROE was 2.50% in H1 2025, down 0.31 percentage points year-over-year, with industry non-GAAP net margin down 0.11 percentage points year-over-year, total asset turnover ratio down 0.04, and equity multiplier up 0.26. Industry profitability faced pressure amid declining industry investment. The firm believes weakening industry investment and companies' collection pressures correspond to increased expenses and impairments, comprehensively impacting and pressuring industry ROE.

**Risk Warning:** Economic recovery below expectations, infrastructure investment below expectations, listed company orders below expectations.