Shenwan Hongyuan Securities·2025-12-18 01:58Core Insights - The report highlights that the construction industry is expected to stabilize in 2026, supported by local government debt management and the implementation of central projects, despite current pressures in infrastructure, manufacturing, and real estate investments [1][2] - The company has shown marginal improvement in new contract signings, with a robust backlog ensuring steady long-term growth. The cumulative new contracts from 2021 to 2025 Q1-3 show a mixed trend, with a notable improvement in the first three quarters of 2025 [1][2] - The company's balance sheet is undergoing continuous repair, with improved cash flow and optimized accounts receivable aging structure, despite revenue and profit pressures due to external economic factors [2][3] Summary by Sections Industry Overview - The fixed asset investment growth has slowed down in 2025, but the outlook for 2026 is optimistic due to government initiatives aimed at stabilizing investments [1] - The construction sector is expected to receive support from the implementation of key projects, which may lead to higher investment elasticity in certain sub-sectors [1] Company Performance - The company reported a total revenue of 728.4 billion RMB in 2025 Q1-3, a decrease of 3.9% year-on-year, with a net profit of 14.8 billion RMB, down 5.6% year-on-year [2] - New contract signings for 2025 Q1-3 showed a marginal improvement, with a total of 8.1 trillion RMB in backlog, ensuring long-term growth [1][2] Financial Health - The company has implemented a three-year plan to control financial metrics, resulting in a reduction of cash outflow by 9.26 billion RMB in 2025 Q1-3 [2] - The aging structure of accounts receivable has improved, with the proportion of long-term receivables decreasing, indicating better cash management [2] Valuation and Investment Recommendation - The report assigns an "Outperform" rating, projecting net profits of 21.4 billion RMB, 21.7 billion RMB, and 22.3 billion RMB for 2025-2027, with corresponding PE ratios of 3X [3] - The valuation comparison with peers indicates a significant discount for H-shares compared to A-shares, with a potential upside of 14.7% based on 2026 earnings estimates [3]