Results Review

3Q26 results miss our expectations

Sinoma International Engineering announced its 3Q26 results: In 1–3Q26, revenue fell 3.2% YoY to Rmb31.94bn, and net profit attributable to shareholders declined 37.9% YoY to Rmb1.29bn. In 3Q26, revenue fell 5.7% YoY to Rmb10.68bn, and net profit attributable to shareholders declined 45.7% YoY to Rmb354mn.

The firm’s results missed our expectations, mainly due to: 1) lower gross profit amid weakening domestic cement market conditions; 2) FX losses arising from depreciation of the US dollar and the euro; and 3) increased provisions for impairment of receivables.

Overseas orders expand steadily; ample orders on hand. In 1–3Q26, the firm's new orders rose 7% YoY to Rmb64.3bn, including new overseas orders of Rmb44.8bn, up 8% YoY. As of end-3Q26, the firm's uncompleted contracts on hand rose 5.9% YoY to Rmb70.8bn. We expect ample orders on hand to support future earnings growth.

Profitability declines slightly; FX and impairment losses weigh on profit. The firm's gross margin fell 0.15ppt YoY to 17.03% in 1–3Q26 and 0.53ppt YoY to 17.53% in 3Q26, mainly due to weak domestic cement demand. The expense ratio rose 1.25ppt YoY to 10.19% in 1–3Q26 and 0.95ppt YoY to 10.71% in 3Q26.

We believe this was partly due to the limited dilution of expenses amid falling revenue and partly to FX losses arising from depreciation of the US dollar and the euro. Financial expenses totaled Rmb120mn in 1–3Q26, vs. -Rmb88mn in 1– 3Q25. In 1–3Q26, the firm's provisions for asset and credit impairment losses totaled Rmb487mn, up Rmb166mn YoY.

Improving cash flow demonstrates order quality. In 1–3Q26, the firm recorded net operating cash inflows of Rmb226mn, vs. net outflows of Rmb629mn in 1–3Q25. In 3Q26, net inflows reached Rmb383mn, vs. net outflows of Rmb22mn in 3Q25. We believe the notable improvement in cash flow was mainly due to increased project advance payments and progress payments received.

Trends to watch

The firm is pursuing coordinated expansion in domestic and overseas markets for its green energy and environmental protection business, while new contracts in its mining business are growing despite the market downturn. We expect incremental business opportunities in these areas to continue translating into earnings growth drivers amid expanding capex demand in mining and green energy and environmental protection businesses.

Financials and valuation

Given persistent demand pressure in the domestic business, which may continue to weigh on profitability, we lower our 2026 and 2027 attributable net profit forecasts 23.9% and 16.5% to Rmb2.18bn and Rmb2.48bn. The stock is trading at 8.7x 2026e and 7.7x 2027e P/E. We maintain an OUTPERFORM rating but cut our target price 9.1% to Rmb10, reflecting changes in market liquidity preferences. Our target price implies 12.0x 2026e and 10.6x 2027e P/E, offering 37.7% upside.

Risks

Execution of overseas contracts and/or expansion of equipment and operation & maintenance businesses disappoint.