Investment positives

We initiate coverage on Sichuan Road & Bridge Group (Sichuan Road & Bridge) with an OUTPERFORM rating and a target price of Rmb10.50, implying 12.4x 2026e and 11.8x 2027e P E and offering 26.4% upside. The firm is a leading engineering & construction company owned by the Sichuan regional government.

Why an OUTPERFORM rating?

We are upbeat on infrastructure investment potential in Sichuan thanks to policy support. The firm derives about 90% of its revenue from engineering and construction in Sichuan province. Sichuan, positioned as a core province in China’s strategic hinterland, receives strong fiscal support from the central government. Sichuan plans to invest over Rmb1trn in roads and waterways during the 15th Five-Year Plan (FYP) period [link in Chinese]. We estimate that the average annual lengths of new roads and railways added in Sichuan during 2024–2035 may increase 66% and 84% compared with those during 2018–2024.

Strong controlling shareholder empowers the firm’s growth. In 2025, 58% of the firm’s revenue came from its controlling shareholder Shudao Investment Group (Shudao), which is the main transportation investor in Sichuan, accounting for 86% of the province’s expressway investment in 2024. Shudao plans to invest an average of Rmb200bn per year during the 15th FYP period and targets annual revenue growth of 5% and annual profit growth of at least 10% [link in Chinese]. We believe that the controlling shareholder will continue to empower the firm’s growth.

High dividend payout ratio ensures dividend returns. The firm and its controlling shareholder have established a development model with integrated investment and construction as the core driver and high shareholding and dividend payout ratios as the main characteristics. As a result, the firm has higher gross margin and dividend payout ratio than comparable companies. The firm has announced a cash dividend payout ratio of no less than 60% over 2025–2027, implying dividend yields of 5.9%, 6.1%, and 6.4% for 2025, 2026, and 2027.

How do we differ from the market? The market is concerned about the sustainability of the firm’s dividend payout and earnings growth. We think that the healthy development model formed between the firm and its controlling shareholder will continue. The firm’s new orders grew 47% YoY to Rmb203.5bn in 2025, and its backlog of unfinished orders reached Rmb335bn as of end-2025. We believe that ample orders will support the firm’s revenue and profit.

Potential catalysts: Faster-than-expected progress in existing projects; higher-than-expected profit contribution from minerals.

Financials and valuation

Our EPS forecast is Rmb0.85 for 2026 and Rmb0.89 for 2027, a CAGR of 3% over 2025–2027. The stock is trading at 9.8x 2026e and 9.3x 2027e P E. We are upbeat on the firm’s investment value, backed by dividends. We initiate coverage with an OUTPERFORM rating and a target price of Rmb10.5, implying 12.4x 2026e and 11.8x 2027e P E and offering 26.4% upside.

Risks

Lower-than-expected infrastructure investment in Sichuan; slower-than-expected project implementation; disappointing investment income; risks in related-party transactions; risks in M&A and asset integration.