UBS has released a research report reducing the target price for China State Con (03311) by 14.8%, from HK$13.5 to HK$11.5, while maintaining a "Buy" rating. Based on the company's 2025 results and 2026 guidance, the bank has lowered its profit forecasts for 2026 and 2027 by 25% and 27%, respectively.

Since mid-2025, the company's stock price has declined by more than 20%. The bank believes this fully reflects the weaker-than-expected 2025 earnings, largely due to the impact from China Construction Xinxing (00830), although core business growth remained strong excluding this factor. While the bank expects profit pressure in the first half of 2026 to weigh on the stock price, it anticipates improvement in the second half of 2026, supported by progress in Hong Kong investments and a low base effect. Looking ahead to 2027, the bank projects an acceleration in earnings as losses from China Construction Xinxing narrow and further progress is made on various initiatives in Hong Kong.

The report noted that both revenue and operating profit for the first quarter of 2026 decreased by 10% year-on-year, falling short of the bank's expectations but aligning with the company's latest 2026 performance guidance. The decline is primarily attributed to a high base in the first half of 2025. The operating profit margin for the first quarter of 2026 stood at 16.7%, up approximately 0.1 percentage points compared to the same period in 2025. Revenue and profit distribution between the first and second halves of 2026 are expected to be more balanced relative to 2025.