Results Review

1H26 results beat our expectations

The firm announced its 1H26 results: Revenue rose 7.62% YoY to Rmb46.85bn and net profit attributable to shareholders grew 11.2% YoY to Rmb3.09bn. In 2Q26, revenue rose 20.73% YoY to Rmb24.81bn and net profit attributable to shareholders grew 58.69% to Rmb1.595bn. The firm’s 1H26 results beat our expectations, which we attribute to faster-than-expected revenue recognition and gross margin improvement in 2Q26.

Construction business grew steadily; leading edge in Sichuan province. In 1H26, revenue from the engineering and construction segment rose 16.21% YoY to Rmb45.13bn, and the value of newly-won projects fell 54.6% YoY to Rmb32.79bn, of which 78.8% were won in Sichuan province. We attribute the decline in new orders to the front-loading of tenders for infrastructure projects in Jiangsu (new orders rose 75% YoY in 4Q25). In fact, we believe the firm still has ample orders on hand (reaching Rmb335bn as of end-2025), laying a solid foundation for future revenue growth.

Profitability and expense control improving slightly. In 1H26, the firm's gross margin rose 0.17ppt YoY to 14.67%, and its expense ratio fell 0.4ppt YoY to 5.28%. Specifically, G&A and financial expense ratios fell 0.2ppt and 0.2ppt to 2.72% and 2.54%, as revenue growth diluted expenses. The firm's operating cash flow reported a net inflow of Rmb4.803bn in 1H26 (vs. a net outflow of Rmb4.28bn a year earlier), and we suggest watching payment collection in 2H26.

Trends to watch

We believe that during the 15th Five-Year Plan period, the infrastructure investment in Sichuan province will still enjoy a solid financial support foundation and practical project demands. Moreover, the unique development model formed by the firm and its controlling shareholder, Shudao Group, will likely continuously empower the firm’s growth. The firm planned to pay a cash dividend of Rmb313mn in 1H26, accounting for 10.12% of its net profit attributable to shareholders. The firm previously announced that its cash dividend payout ratio for 2025–2027 would not be lower than 60% of its attributable net profit. The current stock price implies a 2026e dividend yield of 6.3%. We believe the investment value of the firm's dividend is worth attention.

Financials and valuation

Given the accelerated progress of the firm's projects, we raise our 2026 and 2027 attributable net profit forecasts 8.8% and 13.6% to Rmb8.04bn and Rmb8.78bn. The stock is trading at 9.5x 2026e and 8.7x 2027e P/E. We maintain an OUTPERFORM rating and our TP of Rmb10.5, implying 11.4x 2026e and 10.4x 2027e P/E and offering 19% upside.

Risks

Lower-than-expected infrastructure investment in Sichuan; disappointing order fulfillment.