3Q24 results in line with our expectations
　　China State Construction International (CSCI) announced its 1-3Q24 results: Revenue rose 12.3% YoY to HK$89.3bn, and attributable net profit increased 12.8% YoY to HK$13.04bn. In 3Q24, revenue rose 12.7% YoY to HK$27.5bn, and attributable net profit grew 10.4% YoY to HK$3,804mn, largely in line with our expectations.
　　Trends to watch
　　Revenue structure remains stable; growth in orders from technology and construction sectors accelerated. In 1-3Q24, the firm's revenue maintained 12% growth. By business, revenue from technology, investment, and construction businesses rose 12%, 7%, and 23% YoY, accounting for 21.7%, 44.9%, and 32.9% of total revenue. In 1-3Q24, new orders rose 19.6% YoY to Rmb168bn. Technology-, investment-, and construction-driven contracts changed +22%, - 29%, and +76% YoY, accounting for 41%, 19%, and 40% of total contracts. Looking ahead, we expect the firm to meet its target of HK$210bn new contracts (80% has been completed).
　　Hong Kong SAR market demand to remain robust. According to corporate filings, the firm recently won bids for the Fenling Highway (Gudong Section), an important transport infrastructure project in the northern metropolitan area of Hong Kong SAR, and the Henderson Waterfront Centre project in Central, Hong Kong SAR. In the medium and long term, we believe large public construction projects in Hong Kong SAR and Macao SAR will continue to boost demand for housing and infrastructure construction. The Hong Kong Policy Address further clarified plans for the construction of a technology and education city, and transport infrastructure in the northern metropolitan area. We expect the firm to maintain rapid business growth in Hong Kong SAR, thanks to its leading position in construction markets and technological strengths in Hong Kong SAR and Macao SAR.
　　Accelerated growth in technology projects, which may become a new growth engine for the company. According to corporate filings, the firm’s subsidiary China State Construction Hailong Technology was recently selected as a "little giant" enterprise, and included in the State-owned Assets Supervision and Administration Commission (SASAC) list of "Enterprises with Scientific and Technological Innovation". The firm also　won the bid for the MiC(Modular-integrated Construction) project for the student dormitory at the Dongzhan campus of Chongqing Jianzhu College, which will be the first concrete MiC building in southwest China.
　　Looking ahead, we expect the firm to shift from low-turnover, high-profit margin investment projects to high-turnover and high-profit margin technology projects, which should help it grow faster under an asset-light model. We believe the firm's ability to generate cash flow will continue to improve, and the firm will strengthen economies of scale, boosting medium-to-long-term growth.
　　Financials and valuation
　　We keep our earnings forecasts unchanged. The stock is trading at 5.7x 2024e and 5.0x 2025e P/E. We maintain an OUTPERFORM rating and TP of HK$13.5, implying 6.5x 2024e and 5.7x 2025e P/E and 14% upside.
　　Risks
　　Disappointing payment collection from investment business; slower-than- expected progress in Hong Kong project; slower-than-expected development of MIC business.