We reiterate "Buy" rating and raise the TP to HK$15.50. We slightly raise the EPS forecasts for China State Construction International (CSCI, the "Company") for 2024/ 2025/ 2026 by 0.3%/ 1.9%/ 3.5% to HK$2.034/ HK$2.310/ HK$2.589. We raise the TP to HK$15.50, equivalent to 7.6x/ 6.7x/ 6.0x 2024/ 2025/ 2026 EV/EBITDA.
1H2024 shareholders’ net profit increased 12.7% YoY to HK$5.5 billion, and results were in line with expectation. Total revenue increased 12.1% YoY to HK$61.8 billion in 1H2024, in which technology driven construction was HK$12.9 billion (+6.5%), investment driven construction was HK$28.9 billion (+5.9%), traditional construction was HK$19.3 billion (+28.4%) and operation was HK$0.7 billion (-5.6%). Total new contracts increased 29.2% YoY to HK$125.1 billion, in which technology driven construction was HK$60.0 billion (+21.3%), investment driven construction was HK$22.7 billion (-6.5%), traditional construction was HK$41.4 billion (+87.5%) and operation was HK$1.0 billion (+2.1%). New contracts target for 2024 is HK$210 billion.
Large development projects accelerate in Hong Kong and Macau, facilitating integration into the Greater Bay Area. The Northern Metropolis projects in Hong Kong are accelerating, with expenditures exceeding HK$224.7 billion, focusing on areas like Kwu Tung North and San Tin Science Park. The SAR government plans to maintain annual capital works spending at HK$90 billion. Meanwhile, Macau's economy is recovering, with a significant rise in tourism and gambling revenue. Integration into the Greater Bay Area advances with developments like the Guangdong-Macao In-depth Cooperation Zone in Hengqin and the Shenzhen-Zhongshan Link, facilitating stronger regional connections.
The Modular Integrated Construction (MiC) business has successfully expanded to all first-tier cities. This is underscored by significant projects like the comprehensive old housing renovation at Lane 65 Tianlin Road in Shanghai and a cutting-edge smart construction initiative in Shenzhen. This growth is supported by enhanced production capabilities, evident from the newly operational Jiangmen factory and the upcoming completion of the Shenzhen factory, which will soon extend services to Shanghai and Beijing. This expansion is driven by a commitment to intelligent manufacturing and low-carbon practices, setting new standards in quality productive forces that prioritize sustainable and innovative construction methods.
Catalysts: 1) Large-scale projects continue to advance in Hong Kong and Macau markets; 2) demographic transition and dual carbon targets continue to promote adoption of MiC in Chinese Mainland market.
Risks: 1) Government infrastructure spending may be lower than expected; 2) overseas project risks.