We reaffirm our "buy" rating and maintain our target price of HK $3.10. We estimate that China Construction Industrial ("the Company") will earn HK $0.271 / HK $0.374 / HK $0.491 per share from 2023 to 2025, an increase of 41.9% / 38.0% / 31.3% respectively over the same period last year, corresponding to a compound annual growth rate of 37.0% per share from 2022 to 2025. We maintain our target price of HK $3.10, which corresponds to a 2023 / 2024 / 2025 EV/EBITDA of 9.1x / 7.0x / 5.5x.
The company issued a positive profit forecast, and the board expects shareholders' net profit to grow by no less than 35% year-on-year in the first half of 2023, equivalent to about HK $435 million. The increase in shareholders' net profit is mainly due to the increase in turnover and gross profit margin of curtain wall projects in Hong Kong and Macao compared with the first half of 2022. The profit growth disclosed in the positive profit forecast is in line with expectations.
Apart from continuing to benefit from strong demand in Hong Kong and Macao, the company's mainland China business has also benefited from increased investment in headquarters and R & D centers by more large technology companies and heavy use of glass curtain walls, while leading technology companies and international retail brands have also increased their investment in more technologically advanced and modern glass curtain wall projects to attract passenger flow. These two factors have led to a significant increase in the number of new contracts in mainland China over the past two years. We believe that as more landmark projects are completed and the demonstration effect will bring more new business, we expect the company's newly signed contracts in mainland China to continue to grow rapidly in the next 3-5 years.
Catalysts: 1) there is a growing demand for well-designed glass curtain wall projects by China's leading technology companies; 2) the "The Line" project in Saudi Arabia can provide long-term potential large glass curtain walls and new BIPV contracts.
Risks: 1) government infrastructure spending may be lower than expected; 2) inflation or exceeding expectations may lead to policy tightening; 3) risks of overseas projects.