China State Construction International (CSCI) announced its 3Q26 results: for 9M26/3Q26, the total turnover of the group and attributable joint ventures reached RMB60.79/15.63bn (-24.4/-28.4% YoY); total operating profit plus attributable joint venture profit reached RMB9.86/2.37bn (-17.3/-42.4% YoY). Turnover and earnings remained under pressure primarily due to continued weak industry demand. Considering the company's currently ample order backlog, as well as its medium-to-long term focus on tech momentum – continuously advancing R&D in MiC, BIPV, and C-Smart, and strategically focusing on expanding investment and operation businesses – these factors are likely to support its medium-to-long term profitability, cash flow, and dividends, in our view. Maintain BUY.
Operating cash flow improving, dividend yield attractive
For 9M26, the margin of group operating profit plus attributable joint venture profit was c. 16.2%, with the 1Q/2Q/3Q margins at 16.7/16.5/15.2%, reflecting slight pressure on overall operating margin. On cash flows, CSCI recorded a net operating cash inflow of RMB3.80bn for 1H26, improving significantly from a net inflow of RMB120mn in 1H25; we estimate the net inflow for 9M26 could further expand from 1H26. In recent years, CSCI has consistently emphasized cash flow improvement, achieving net operating cash inflows continuously since 2022, which we believe could keep cash on hand abundant and support medium-to-long term dividend capacity enhancement. Based on a 2025 payout ratio of c. 35% and the share price as of 22 October, we project the 2026 dividend yield at c. 8.5%, offering strong attraction.
Earnings forecasts and valuation
Considering that 4Q is the traditional peak season for company orders and revenue settlement, with major projects in Chinese Mainland and Hong Kong expected to settle in 4Q, we maintain our 2026/2027/2028 attributable net profit forecasts at RMB8.75/9.16/9.63bn, implying EPS of RMB1.66/1.73/1.82. In view of the company's ample order backlog, improving gross margin and cash flows, and medium-to-long term tech empowerment supporting profitability and business model transition, we continue to value the stock at 5.6x 2026E PE, above its peers' average of 5.05x on iFind consensus, for our target price of HKD10.84 (unchanged). Maintain BUY.
Risks: investment in Hong Kong and Macao missing our expectations; weaker expansion in Chinese Mainland than we expect; lower MiC application than we expect.