Revenue of Chengda Group (01568 HK) fell 4.4 per cent to HK $1.663 billion in the first half of 2017 compared with the same period last year. Net profit fell 38.3 per cent year-on-year to HK $152 million. The performance was lower than expected. The decrease in revenue and net profit was mainly due to an unexpected decline in the volume of private sector construction in the Macau market and delays in the start of some projects. As of June 30, 2017, the total contract value and the remaining project value were HK $5.053 billion and HK $3.467 billion, respectively.

Revenue from interior decoration engineering fell 12.7% to HK $1.304 billion in the first half of 2017. We expect progress to improve in the second half of 2017, and expect interior decoration revenue to fall by only 5% year-on-year for the whole year, while revenue will rebound by 15% in 2018. On August 10, 2017, the company completed its acquisition of Beijing Chengda for HK $520 million, which will be the main driver of revenue and net profit growth from 2018 to 2019.

Our earnings per share forecast for 2017-2019 are HK $0.192, HK $0.264 and HK $0.282. We expect the interior decoration business to recover moderately in 2018, while Beijing Chengda's significant contribution will be reflected. We lowered our target price slightly to HK $4.80, which is equivalent to the 2017 price-to-earnings ratio of 2018 and 2019, which is 16.1 times the price-to-earnings ratio of 23.9 to 17.4. Maintain the investment rating of "collection".