Construction / infrastructure shares have fallen between 10.5 per cent and 31.0 per cent since the last report was published on March 2 because of a weak investment climate. The industry's weighted average price-to-earnings ratio fell to 3.6 times from 4.2 times. However, Hebei Construction (1727.HK) maintains a forecast price-to-earnings ratio of 11 times earnings in 2020, and the projected dividend yield for 2020 is only 2.7%, less than half of the industry's weighted average dividend yield of 5.6%.

Based on the high valuation of Hebei Construction, we further lowered the target price of the shares to HK $3, equivalent to 7.4 times the 2020 forecast price-to-earnings ratio. At current prices, there is a potential decline of 32.7%, so the rating will be downgraded from "neutral" to "sell".

Among all the construction / infrastructure shares, we prefer China Construction International (3311.HK) and China Communications Construction (1800.HK), mainly due to the significantly lower valuations (3.4x and 3.3x; Hebei Construction 11 times) and more attractive dividend yields (7.4per cent and 5.2per cent; Hebei Construction 2.7per cent).

After Hebei Construction announces its annual results on March 30, we will re-examine the company's profit forecast.