Core Viewpoint - China Power Construction Corporation (China Power) has been experiencing a continuous decline in net profit, yet it remains a stronghold for state-backed investors like Central Huijin and China Securities Finance, who have held their shares for nearly a decade despite the company's performance challenges [1][3]. Group 1: Company Overview - China Power is a leading player in the global power engineering construction sector, responsible for over 80% of large hydropower station construction in China and holding more than 50% of the global hydropower market share [5]. - The company is positioned to benefit from a significant investment plan of 4 trillion yuan by the State Grid during the 14th Five-Year Plan, focusing on ultra-high voltage, smart grid, and energy storage facilities [3]. Group 2: Financial Performance - In the first half of 2025, China Power reported a revenue of 292.76 billion yuan, a year-on-year increase of 2.66%, but its net profit fell to 5.43 billion yuan, down 13.81% [9]. - The company's gross profit margin decreased from 12.27% to 11.23% due to rising costs of core materials and labor, which increased by 8% to 10% and approximately 5%, respectively [9][11]. - As of mid-2025, accounts receivable reached 150.95 billion yuan, accounting for 51.56% of revenue, indicating significant capital tied up in unpaid project funds [11]. Group 3: Market Position and Shareholder Engagement - Major index funds, including those from Huatai-PB, E Fund, and Harvest, have also invested in China Power, reflecting confidence in the company's long-term prospects [4]. - The company has maintained a stable dividend policy, distributing 1.2695 yuan per 10 shares in 2024, with a historical dividend yield above 2%, appealing to long-term investors [13]. Group 4: Future Outlook - China Power's new contract value in the energy sector reached 585.23 billion yuan in the first three quarters of 2025, with a growth rate of 12.89%, indicating a robust order backlog for future revenue conversion [16]. - The company is transitioning from a pure construction model to an integrated investment and operation model, enhancing its revenue stability through operational assets in renewable energy [16]. - Despite short-term profit pressures, the company is positioned to capitalize on the national investment plan and the global shift towards green energy, presenting both opportunities and challenges [16][17].

Investment Rating - The report maintains a "Buy" rating for the company, indicating an expected relative return of over 20% within the next six months [6][17]. Core Views - The company's Q1 performance continues to face pressure, with a slight revenue increase of 1.61% year-on-year to CNY 142.56 billion, while net profit decreased by 12.03% to CNY 2.636 billion. The expectation is for gradual improvement in operations due to anticipated fiscal policy support [1][2]. - The report highlights the potential benefits for the company from major hydropower projects, as it is a leading player in the water conservancy and hydropower sector, responsible for over 80% of river planning and more than 65% of the construction of medium and large hydropower stations in China [3][1]. Financial Performance Summary - In Q1 2025, the company reported a gross margin of 10.81%, a decrease of 0.98 percentage points year-on-year. The net profit margin was 2.46%, down by 0.4 percentage points [2]. - The company signed new contracts worth CNY 299.32 billion in Q1 2025, a decrease of 9.6% year-on-year. Notably, new contracts in hydropower and wind power increased by 20.2% and 67.3% respectively, indicating strong demand in these sectors [3]. - The company's operating cash flow showed a net outflow of CNY 40.519 billion in Q1 2025, which is an increase in outflow by CNY 1.516 billion compared to the same period last year [2]. Financial Data and Valuation - The projected revenue for the company is expected to grow from CNY 609.41 billion in 2023 to CNY 738.51 billion by 2027, with a compound annual growth rate of approximately 6.87% [5]. - The estimated net profit attributable to the parent company is projected to increase from CNY 12.99 billion in 2023 to CNY 15.66 billion by 2027, reflecting a growth rate of 11.76% [5]. - The company's price-to-earnings (P/E) ratio is projected to decrease from 6.43 in 2023 to 5.34 by 2027, indicating potential undervaluation [5].