We reaffirm our "buy" rating and maintain our target price of HK $3.10. We forecast that China Construction Industrial ("the Company") will earn HK $0.259 / HK $0.346 / HK $0.458 per share from 2023 to 2025, an increase of 35.7% / 33.4% / 32.4% respectively over the same period last year, equivalent to a compound annual growth rate of 33.8% for earnings per share from 2022 to 2025. We maintain the target price of HK $3.10, corresponding to 9.4x / 7.2x / 5.6x 2023 / 2024x2025 EV/EBITDA.
Revenue in the first half of 2023 rose 23.9% year-on-year to HK $4.717 billion. Net profit for shareholders rose 35.7 per cent year-on-year to HK $437 million. The performance is in line with expectations. Due to the high gross profit margin of the projects completed in Hong Kong and Macao, the gross profit margin rose 0.2 percentage points year-on-year to 14.3%. The value of newly signed contracts increased by 10.2 per cent year-on-year to HK $6.623 billion. As of June 30, 2023, the value of outstanding contracts increased by 17.7 per cent year-on-year to HK $15.31 billion.
The company has grown steadily in the Hong Kong and Macao markets and rapidly in the mainland market, with a 51 per cent year-on-year increase in new contracts in the first half of 2023. While gradually withdrawing from the North American market, the company has refocused on other overseas markets, especially Singapore. In addition to the traditional glass curtain wall business, the company continues to increase investment in green business. The production line of the first phase of BIPV business has been officially put into production, and the second phase of the expansion project is under active preparation, and a number of new products with high efficiency and low cost are also being gradually launched to prepare for the expected outbreak of demand after 2025.
Catalyst: 1) BIPV business is developing new products to increase efficiency and reduce cost, which is expected to become a new growth engine for the company's revenue and profit within 2 years; 2) with the expected improvement in financial performance, the company intends to continue to increase the dividend payout ratio.
Risks: 1) government infrastructure expenditure may be lower than expected; 2) overseas project risk.