1H26 results in line with our expectations

China State Construction Engineering Corp. announced its 1H26 results: Revenue fell 11.95% YoY to Rmb975.8bn, while net profit attributable to shareholders fell 24.35% YoY to Rmb23bn. In 2Q26, revenue fell 16.09% YoY to Rmb464bn, while attributable net profit fell 40.75% YoY to Rmb9.1bn. The firm's 1H26 results were in line with our expectations.

Industrial plants have become an important growth driver for the housing construction business. In 1H26, revenue from the building construction business fell 18.0% YoY to Rmb571.3bn, while GM rose 0.9ppt YoY to 8.2%. New orders for housing construction rose 3.7% YoY to Rmb1,551.1bn, of which orders for industrial plants rose 24.2% YoY to Rmb561.7bn, accounting for 36% of total new housing construction orders. The proportion of orders for public buildings increased to 74.5%.

Profitability of the infrastructure construction business improving: In 1H26, revenue from the infrastructure construction business fell 9.9% YoY to Rmb246.5bn, while GM rose 0.5ppt YoY to 10.8%. New orders for the infrastructure construction business fell 10.8% YoY to Rmb734.4bn in 1H26.

Real estate business focuses on breakthroughs in core cities and regions. In 1H26, revenue of the real estate business rose 15.2% YoY to Rmb152bn, and GM fell 1.0ppt YoY to 15.0%. In 1H26, 1.24mn sqm of new land reserves were mainly located in tier-1/2 cities and provincial capitals in China, with end-1H26 land reserves at 63.02mn sqm.

Impairment provisions and FX losses weighed further on profit. In 1H26, the firm’s asset and credit impairment provisions totalled Rmb10.04bn, up 32% YoY, while it recorded FX losses of Rmb1.12bn, compared with FX gains of Rmb109mn a year earlier. Net operating cash outflow was Rmb28.5bn, narrowing by Rmb54.4bn YoY, as the firmstrengthened cash flow management.

Trends to watch

The firm continued to advance its internationalization strategy. In 1H26, new overseas business contracts rose 45.3% YoY to Rmb182.1bn, while overseas revenue grew 27.0% YoY to Rmb75.98bn. We expect new businesses and overseas markets to drive the transformation of the firm's business mix. As the firm strengthens risk control and project screening, we believe improving financial statement quality could support a valuation recovery.

Financials and valuation

We keep our 2026 and 2027e attributable net profit forecasts largely unchanged at Rmb37bn and Rmb37.1bn. The stock is trading at 4.8x 2026e and 4.8x 2027e P/E. We maintain our OUTPERFORM rating and Rmb6.0 target price, implying 6.7x 2026e and 6.7x 2027e P/E and dividend yields of 6.3% and 6.3%. Our target price implies 38.6% upside. We remain positive on the stock, as the firm is a blue-chip central SOE with a low valuation, and we expect its market share to gradually increase over the medium to long term.

Risks

Disappointing project payment collection and/or order execution; intensifying domestic competition.