Tianfeng: Pressure on the performance of the 25H1 construction sector. Focus on high dividends and niche high-growth sectors.

Tianfeng Research Report released, stating that the revenue and performance of the construction sector in the first half of the year were under pressure and declined; gross and net profit margins decreased slightly year-on-year, while the asset-liability ratio increased slightly; the performance of sub-sectors varied, with the chemical engineering and steel structure sectors achieving steady growth in performance. The bank stated that the accelerated issuance of special bonds provides strong support for the growth rate of infrastructure investment in the second half of the year, and it is expected that the revenue and net profit margin of the construction sector in the second half of the year will show marginal recovery. Infrastructure central enterprises maintain good resilience, with a focus on high-dividend stocks and high-growth niche markets. Tianfeng's key points are as follows: H1 construction sector revenue and performance declined, optimistic about profit recovery in the second half of the year In the first half of 2025, the revenue of the CS construction sector reached 396.39 billion yuan, a year-on-year growth rate of -5.5%, achieving a net profit attributable to the parent company of 91.3 billion yuan, a year-on-year growth rate of -6.03%. The revenue growth rate decreased by 2.02 percentage points compared to the same period in 2024, and the performance growth rate decreased by 5.26 percentage points compared to the same period in 2024. The overall revenue and profit of the construction sector were under pressure. The decline in profit was mainly due to the year-on-year decrease in gross profit margin and a slight increase in expense ratio, leading to a slight decrease in net profit margin. The gross and net profit margins decreased slightly year-on-year, and the asset-liability ratio increased slightly. In the first half of 2025, the gross profit margin decreased by 0.15 percentage points year-on-year, and the expense ratio increased by 0.23 percentage points to 5.76%. The sales/management/financial/research and development expense ratios changed year-on-year by +0.08%, +0.02%, +0.18%, and -0.04% respectively. The impairment loss of the sector was 25.86 billion yuan, a decrease of 6.6% year-on-year, accounting for 0.65% of revenue, a decrease of 0.01% compared to the same period last year. The overall net profit margin was 2.87%, a slight decrease of 0.04% year-on-year. In the first half of 2025, the net outflow of CFO was 495.7 billion yuan, a decrease of 3.07% year-on-year, with a decrease of 15.7 billion yuan compared to the same period last year. The net outflow of CFI was 129 billion yuan, a decrease of 19.7 billion. The overall asset-liability ratio of CS construction sector in the first half of 2025 was 77.55%, an increase of 0.71 percentage points year-on-year. The central state-owned enterprises continued the trend of leverage. In the second quarter of 2025, the gross profit margin of the sector was 10.07%, a decrease of 0.15 percentage points year-on-year, an increase of 0.83 percentage points quarter-on-quarter, with a net profit margin of 2.87%, a decrease of 0.04 percentage points year-on-year, an increase of 0.05 percentage points quarter-on-quarter, and the profitability was under pressure. The performance of sub-sectors varied, with steady growth in performance of chemical engineering and steel structure The revenue growth rate in the first half of 2025 was better than the sector average in the design consulting, steel structure, chemical engineering, and international engineering sectors, with revenue growth rates of +3.06%, +2.84%, -1.54%, and -2.98% respectively; the sectors with positive growth rates in net profit attributable to the parent company were decoration engineering, landscaping engineering, chemical engineering, and steel structure, with growth rates of +63.8%, +49.3%, +3.9%, and +2.2% respectively. In the chemical engineering sector, East China Engineering Science and Technology and China National Chemical Engineering achieved a year-on-year growth in net profit attributable to the parent company of 14.6% and 9.3% in the first half of 2025, respectively. In the steel structure sector, Changjiang & Jinggong Steel Building and Center International Group achieved year-on-year growth in net profit attributable to the parent company of 28% and 25.5% in the first half of 2025, respectively. The revenue and performance growth rates of the nine major central enterprises in the first half of 2025 were -4.39% and -7.57% respectively. While income was under pressure, it was overall better than the construction sector. The market share of newly signed orders increased from 35% in 2019 to 55.5% in the first half of 2025, indicating a further increase in market share as a leading indicator. Resilience of central enterprises highlighted, focus on high-dividend stocks and high-growth niche markets From the semi-annual reports of individual stocks in the construction sector, 1) infrastructure central enterprises maintained good resilience. China State Construction Engineering Corporation (601668.SH), China National Chemical Engineering (601117.SH), and China Energy Engineering Corporation (601868.SH) achieved positive growth in net profit attributable to the parent company in the first half of 2025, reflecting the operational resilience of leading companies, while also maintaining high prosperity in sectors such as chemical engineering, energy, and water conservancy; 2) Professional engineering: Shandong Sunway Chemical Group (002469.SZ) achieved a quarterly revenue and net profit growth rate of 38.48% and 156.22% in the second quarter, while East China Engineering Science and Technology (002140.SZ) achieved a net profit growth rate of 36.13% in the second quarter of 2025, further confirming the prosperity of coal chemical engineering; Profit improvement of private enterprises that are transitioning overseas is evident, with a focus on Jangho Group (601886.SH) and Changjiang & Jinggong Steel Building (600496.SH); 3) International engineering: Sinoma International Engineering (600970.SH) achieved a 3.74% increase in revenue in the first half of 2025, with a 8.69% increase in revenue in the second quarter, maintaining a good growth trend overall; 4) Among local state-owned enterprises, infrastructure in central and western regions maintains high elasticity. Local state-owned enterprises that achieved positive growth in both revenue and profit in the first half of 2025 include Shandong Hi-Speed Road & Bridge Group (000498.SZ), Zhejiang Communications Technology (002601.SZ), Long Jian Road & Bridge (600853.SH), and Xinjiang Communications Construction Group (002941.SZ). Xinjiang Communications Construction Group has shown strong profitability, with the infrastructure order growth rate exceeding 25% for two consecutive quarters since 2025, and its performance elasticity is worth looking forward to. Risk warning: Infrastructure and real estate investment decline exceeds expectations; progress in the reform and efficiency improvement of central and state-owned enterprises is slower than expected; and tariffs have a greater impact than expected.