2024 results in line with our expectations

China State Construction Engineering Corp. (CSCEC) announced its 2024 results: Revenue fell 3.5% YoY to Rmb2.19trn and net profit attributable to shareholders fell 14.9% YoY to Rmb46.19bn, in line with our expectations.

In 4Q24, revenue fell 5.7% YoY to Rmb560.61bn, and net profit attributable to shareholders fell 38.9% YoY to Rmb6.48bn.

1) Housing construction business: In 2024, revenue fell 4.5% YoY to Rmb1.32trn, and gross margin rose 0.1ppt YoY to 7.4%.

2) Infrastructure construction business: In 2024, revenue fell 1.0% YoY to Rmb550.9bn, and gross margin rose 0.2ppt YoY to 10.0%.

3) Real estate business: In 2024, contracted sales fell 6.5% YoY to Rmb421.9bn, contracted GFA fell 21.4% YoY to 14.61mn sqm, and revenue fell 0.8% YoY to Rmb306.2bn. CSCEC acquired 8.82mn sqm of new land in 2024, with a total land purchase value of Rmb138.5bn.

4) Overseas business: In 2024, overseas orders grew rapidly, with new overseas contracts up 19.0% YoY to Rmb221.3bn and revenue up 2.5% YoY to Rmb118.6bn.

5) Expense ratio edged up; provisions weighed on earnings. In 2024, selling, G&A, R&D, and financial expense ratios rose 0.06ppt, 0.06ppt, 0.04ppt, and 0.07ppt YoY to 0.40%, 1.58%, 2.08%, and 0.89%. The firm made Rmb6.46bn of provisions for asset impairment losses (up Rmb0.75bn YoY) and Rmb13.63bn of provisions for credit impairment losses (up Rmb5.04bn YoY).

6) Net operating cash flow improved and dividend payout ratio increased notably. Thanks to strengthened payment collection, net operating cash flow rose 43.0% YoY to Rmb15.77bn in 2024. The firm announced a cash dividend payout ratio of 24.29% in 2024, up 3.47ppt YoY.

2025 operating targets: New contracts to exceed Rmb4.6trn (up 2.2% YoY) and revenue to exceed Rmb2.28trn (up 4.1% YoY).

Trends to watch

New contracts grow steadily; fiscal expansion to support earnings. In 2024, new contracts rose 4.1% YoY to Rmb4.50trn. New contracts for the　housing construction business fell 1.4% YoY to Rmb2.65trn, and new contracts for the infrastructure construction business rose 21.1% YoY to Rmb1.41trn. We expect revenue, gross margin, and payment collection to further improve, since CSCEC, as a leading housing construction company, is set to benefit from fiscal expansion and increased funding from the continued issuance of local government bonds.

Financials and valuation

As we lower our assumptions for booked revenue and gross margin, we lower our 2025 earnings forecast 5.5% to Rmb50.14bn and introduce our 2026 earnings forecast at Rmb52.82bn. The stock is trading at 4.4x 2025e and 4.2x 2026e P/E. We maintain an OUTPERFORM rating and target price of Rmb7.0, implying 5.8x 2025e and 5.5x 2026E P/E and offering 30.1% upside.

Risks

Disappointing profit margin and/or demand recovery.