Investment Rating - The industry rating is maintained as "Outperform" [5] Core Insights - The construction sector is experiencing revenue and profit pressure, with a revenue of 39,639 billion yuan in H1 2025, a year-on-year decline of 5.5%, and a net profit of 913 billion yuan, down 6.03% year-on-year. However, the decline in revenue growth has narrowed compared to the same period in 2024, indicating potential recovery in profitability in the second half of the year [1][14][22]. Summary by Sections 1. Industry Overview - The construction sector faced significant operational pressure in H1 2025, with both revenue and net profit declining. The revenue growth rate decreased by 2.02 percentage points compared to the same period in 2024, while the profit decline rate improved by 5.26 percentage points [1][14]. - The overall gross margin for the construction sector in H1 2025 was 10.07%, a slight decrease of 0.15 percentage points year-on-year, while the net margin was 2.87%, down 0.04 percentage points year-on-year [2][26]. 2. Subsector Performance - Subsector performance varied, with design consulting, steel structure, chemical engineering, and international engineering showing better revenue growth than the overall sector, with growth rates of +3.06%, +2.84%, -1.54%, and -2.98% respectively. Notably, the chemical engineering sector saw positive net profit growth [3][4]. - The resilience of state-owned enterprises (SOEs) was highlighted, with major players like China State Construction and China Chemical achieving positive net profit growth in H1 2025, reflecting strong operational resilience [4][21]. 3. Financial Metrics - The construction sector's asset-liability ratio increased to 77.55% in H1 2025, up 0.71 percentage points year-on-year, indicating a trend of increasing leverage among state-owned enterprises [2][32]. - The cash flow from operations (CFO) showed a net outflow of 4,957 billion yuan, a year-on-year improvement of 3.07%, suggesting a slight recovery in cash collection efforts [2][38]. 4. Investment Recommendations - The report emphasizes the importance of focusing on high-dividend stocks and high-growth subsectors within the construction industry, particularly in infrastructure and energy sectors, which are expected to maintain strong performance [4][11].