Chengda Group (01568 HK)'s revenue for the first half of 2019 decreased 9.9% year-on-year to HK$2,436 million. Shareholders' net profit decreased 38.5% year over year to HK$127 million. The performance was worse than expected. Overall gross margin fell 0.9 percentage points year over year to 11.6%.

As at 30 June 2019, the total contract amount and remaining project value were HK$9.613 billion and HK$5.278 billion respectively.

We expect revenue from the interior decoration engineering business to grow at a compound annual rate of 3.8% between 2018-2021, and revenue from the remodeling and addition and construction engineering business to decline at a compound annual growth rate of 2.1% in 2018-2021. Additionally, we expect the overall gross margin to increase from 13.2% in 2019 to 14.3% in 2021. The company's financial position will also maintain strong and high liquidity from 2019 to 2021.

We forecast the Company's earnings per share from 2019 to 2021 at HK$0.160, HK$0.176 and HK$0.199. We lowered the company's profit forecast based on worse than expected results for the first half of 2019, increased uncertainty in the global economy, and higher-than-expected market competition. Lower the target price to HK$3.80, which is equivalent to 23.8/ 21.5/ 19.0 times the price-earnings ratio for 2019/2020/2021. Downgraded to a “neutral” rating.