2025 results miss our expectation

Sinoma International Engineering announced its 2025 results: Revenue rose 7.53% YoY to Rmb49.60bn in 2025, net profit attributable to shareholders fell 4.06% YoY to Rmb2.86bn, and recurring net profit attributable to shareholders fell 4.42% YoY to around Rmb2.60bn. In 4Q25, revenue rose 15.31% to Rmb16.60bn and net profit fell 14.61% to Rmb788mn. The firm's 2025 results slightly miss our expectations, mainly due to higher-than-expected asset and credit impairment losses.

1) Overseas revenue maintained rapid growth. In 2025, revenue from engineering, equipment, and operation & maintenance businesses grow 7.7%, 12.0%, and 3.8% YoY to Rmb29.20bn, Rmb6.95bn, and Rmb13.40bn. By region, revenue from overseas business rose 22.0% YoY to Rmb27.16bn.

2) Profitability came under pressure. In 2025, the firm's gross margin fell 1.1ppt YoY to 18.5%, with gross margins of the engineering, equipment, and operation & maintenance businesses at 14.3%, 20.8%, and 22.5%.

3) Expense control continued to improve. In 2025, the firm's expense ratio fell 1.2ppt YoY, with selling, G&A, R&D, and financial expense ratios down 0.1ppt, 0.2ppt, 0.2ppt, and 0.9ppt YoY, mainly as interest income increased due to FX gains from the appreciation of EUR.

4) The sluggish domestic cement industry increased impairment and weighed on cash flow. In 2025, the firm's provisions for asset and credit impairment losses totaled Rmb1.01bn (up Rmb604mn YoY), weighing on its profit; operating cash flow fell 22% YoY to Rmb1.78bn, which we attribute to the aging of accounts receivable amid mounting earnings pressure in the domestic cement industry.

5) Attractive dividends underscore investment value. The firm's dividend payout ratio was 44% in 2025, implying a dividend yield of 4.7%.

Trends to watch

Ample orders on hand; upbeat on overseas business growth. As of end-2025, the firm's order backlog grew 11.3% YoY to Rmb66.46bn, which may support its revenue growth. Looking ahead to 2026, we believe investors should continue to pay attention to the pace of conversion of overseas orders amid the conflict in Middle East. In China, the Ministry of Ecology and Environment has called for efforts to complete ultra-low emission transformation of 100mnt of cement and clinker production capacity in 2026, which may further boost demand for orders related to domestic technological transformation.

Financials and valuation

Considering that the progress of the company's ongoing projects has slowed down, we lower our 2026 earnings forecast 10.8% to Rmb3.00bn and introduce our 2027 attributable net profit forecast of Rmb3.10bn. The stock is trading at 9.0x 2026e and 8.7x 2027e P/E. We are optimistic about the company's dividend investment value, we maintain an OUTPERFORM rating and our target price of Rmb12.5, corresponding to 10.9x 2026e and 10.6x 2027e P/E and implying 21.5% upside.

Risks

Disappointing growth of equipment and operation & maintenance businesses; slower-than-expected progress in contract execution.