We maintain "Buy", and lower TP to HK$2.35. We forecast Horizon Construction Development (the "Company") shareholders' net profit in 2024-2026 to reach RMB810 mn/ RMB886 mn/ RMB1,009 mn, respectively.

We forecast earnings per share in 2024-2026 to be RMB0.202, RMB0.251, and RMB0.221, respectively. Our TP is based on 2024 PER of 11.5x.

In the first half of 2024, the Company aggressively expanded its overseas operations, as evidenced by a 62% YoY increase in overseas revenue to approximately RMB73 million, while the operational scale grew more than tenfold, indicating much of the new operations are yet to fully contribute to revenue. The Company's capex surged by 364.7% YoY to RMB4.37 billion, being primarily used to scale up procurement of aerial work platforms to consolidate market share and to expand product lines including special aerial work equipment, material handling equipment, small lifting equipment, and mining equipment. Management indicates a long-term strategic focus on international markets, earmarking 30% of total capex for overseas expansion, prioritizing market learning and presence over immediate profitability, suggesting a shift towards securing a robust global market position while navigating the risks of high investment against the backdrop of market uncertainties and regulatory challenges.

Domestic market demand for construction equipment is expected to further recover with the implementation of stimulus policies. Recent policy adjustments in macroeconomics and the real estate industry indicate proactive government measures to stabilize the economy and stimulate market sectors. The reserve requirement ratio has been cut by 50 basis points, releasing RMB1 trillion in liquidity, with further cuts potentially lined up.

Policy rates including the 7-day reverse repo rate have been lowered, alongside anticipated reductions in the Medium-term Lending Facility (MLF) rates and the Loan Prime Rate (LPR). On the industry level, efforts include lowering existing home loan rates to align with new loans, reducing the minimum down payment for second homes from 25% to 15%, and increasing central bank fund support for guaranteed housing re-lending from 60% to 100%. Additionally, extensions have been granted to policies supporting commercial property loans and market-based acquisitions of real estate lands, with the possibility of central bank re-lending support, all aimed at promoting real estate market health and affordability.

Risks: Intensified industry competition; industry demand recovery insufficient.