Results Review

1Q26 results in line with our expectations

The company announced its 1Q26 results: Revenue fell 7.8% YoY to Rmb511.8bn; attributable net profit fell 7.5% YoY to Rmb13.88bn. The 1Q26 results were in line with our expectations.

1) Housing construction business mix continues to improve. In 1Q26, revenue from housing construction was Rmb332.1bn, down 9.0% YoY, with a GM of 6.38%, up 0.3ppt YoY. New housing construction orders in 1Q26 totaled Rmb830bn. Among these, new industrial plant orders were Rmb284bn, up 22.5% YoY, accounting for 34%. Other housing construction orders (municipal supporting buildings, data centers, etc.) rose 63.7% YoY to Rmb135.5bn, reflecting the company’s accelerating expansion in niche segments.

2) Infrastructure business’s profitability recovered. In 1Q26, revenue from the infrastructure business was Rmb118.6bn, down 7.6% YoY, with GM of 8.77%, up 0.6ppt YoY. New infrastructure orders in 1Q26 were Rmb362.9bn, down 13.7% YoY. Among these, energy engineering orders were Rmb158.1bn, down 14.4% YoY, while water conservancy and water transport orders were Rmb13.8bn, up 41.2% YoY.

3) Property business continues its adjustment; new land reserves are in core cities and regions. In 1Q26, revenue from the property business was Rmb52.4bn, down 2.4% YoY, with GM of 13.51%, down 3.4ppt YoY. The company added 130,000sqm of land reserves, all in tier-1 and tier-2 cities. Land reserves totaled 67.50mn sqm at the end of 1Q26.

4) Overseas business grew rapidly. In 1Q26, the company signed new overseas contracts worth Rmb73.9bn, up 9.5% YoY, and generated gross profit of Rmb1.52bn, up 29.1% YoY. This mainly reflects faster order growth in Southeast Asia, North Africa, West Asia, and other regional markets.

Trends to watch

In 1Q26, the company’s net operating cash outflow was Rmb76.99bn, a reduction of Rmb18.89bn YoY. This mainly reflects stronger budget control and receivables collection, stricter supervision, and improved coordination mechanisms, all driving operating cash flow to improve. The stock’s P/B ratio currently sits at the 0.7th percentile since 2021, a low level. We believe that as the company strengthens risk control and project selection, balance sheet quality improvement could drive valuation recovery.

Financials and valuation

We keep our 2026 and 2027 attributable net profit forecasts unchanged at Rmb37.03bn and Rmb37.04bn. The stock is trading at 5.4x 2026e and 5.4x 2027e P/E. We maintain our OUTPERFORM rating and target price of Rmb6.0, implying 6.7x 2026e and 6.7x 2027e P/E, with a dividend yield of 5.6% for both years, offering 24.2% upside.

Risks

Disappointing project payment collection and execution of backlog orders; intensifying competition in China.