Chengda Group (01568 HK)'s 2019 revenue increased 13.1% year-on-year to HK$6.096 billion. Shareholders' net profit increased 8.3% year over year to HK$413 million. The performance was in line with expectations. As at 31 December 2019, the total contract amount and remaining project value were HK$11.226 billion and HK$5.461 billion respectively.

Revenue from the interior engineering business increased 25.9% year-on-year to HK$5.294 billion in 2019. Due to the COVID-19 outbreak, construction commencement has been delayed and demand for commercial renovation projects has declined, so we expect revenue from renovation projects in all markets to fall. Although the Hong Kong and mainland China markets are expected to recover slowly, the Macau market is likely to recover more quickly as many casino hotels enter a refurbishment cycle. We expect renovation project revenue to grow at a CAGR of 1.9% in 2019-2022.

Our earnings per share forecasts for 2020/2021/2022 are HK$0.153, HK$0.209 and HK$0.252, respectively. We expect the company to perform poorly in 2020 due to the COVID-19 outbreak, but thanks to the Macau hotel renovation cycle, the company's business is expected to recover quickly in 2021. We lowered our target price to HK$3.54, which is equivalent to 23.2/16.9/14.0 times the 2020/2021/2022 price-earnings ratio. Maintain a “neutral” investment rating.