Citigroup: China Lesso (02128) shows signs of stabilization in its mainland business, raises target price to 7 Hong Kong dollars.

Citigroup released a research report stating that they have contacted the Chief Financial Officer and Deputy Chief Financial Officer of CHINA LESSO (02128) before the earnings blackout period. The bank lowered its earnings forecast for 2026 to 2028 by 11% to 18%, reflecting impairment of non-core projects. However, its core mainland business shows signs of stabilization, with a reduction in drag from the residential business and strong growth in non-residential businesses such as agriculture, industry, healthcare, and municipal services offsetting it. The bank uses a forecasted P/E ratio of 9 times for valuation (0.5 standard deviations higher than historical average), raising its target price from 6.5 Hong Kong dollars to 7 Hong Kong dollars and rating it as "Buy". Citigroup believes that CHINA LESSO's overseas channel business is expected to become a major driver of future growth, with sales expected to increase by over 50% this year. The bank expects CHINA LESSO's core net profit in the second half of last year to decline by 10% year-on-year to 938 million yuan, falling by 13% on a half-year basis, and predicts that the net profit margin in the second half of last year will decrease slightly from 8.7% in the first half of last year to 7.4%. The stock has risen about 20% recently in positive sentiment, and they believe any pullback will be a buying opportunity. However, in selecting stocks in the Chinese infrastructure industry chain, the bank prefers ZOOMLION (01157) as the top choice, followed by Hangcha Group (603298.SH), and then CHINA LESSO.