CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS(00830.HK)：1H24 RESULTS GROW STEADILY; VALUATION ATTRACTIVE-格隆汇

机构：中金公司
研究员：Yan CHEN/Maoda YANG/Qing GONG

　　1H24 results in line with our expectations
　　China State Construction Development Holdings (CSC Development) announced its 1H24 results: Revenue rose 0.1% YoY to HK$4.72bn and net profit grew 26% YoY to HK$550mn, with net margin increasing by 2.4ppt YoY to 11.7%. Its results in 1H24 were largely in line with our expectations and market consensus.
　　Facade contracting in Hong Kong SAR and Macao SAR continued to grow rapidly, representing the main earnings source for the company. In 1H24, the company's facade contracting business remained flat YoY. Specifically, revenue from facade contracting in Hong Kong SAR and Macao SAR jumped 24% YoY to HK$3.06bn. The company controlled non-core businesses (excluding Hong Kong SAR and Macao SAR, other revenue dropped by 26% YoY to HK$1.67bn; revenue from North America fell HK$162mn YoY to HK$35mn). As revenue of facade contracting in Hong Kong SAR and Macao SAR as a percentage of total revenue increased to 65% in 1H24 from 52% in 1H23, the company's integrated GM rose 1.8ppt YoY to 16.1% in 1H24. GM of the facade contracting business increased by 2.4ppt YoY in 1H24 to 15.8%.
　　Contract value of facade contracting in Hong Kong SAR and Macao SAR remained high. In 1H24, the value of new contracts fell 9% YoY to HK$6.04bn, due to a high base in 1H23 (the company signed many high-value contracts related to hospital projects in 1H23). New orders increased by 24% in 1H24 compared to 2H23.
　　Asset structure continued to improve. The asset-liability ratio dropped to 76% in 1H24, down 2.7ppt from end-2023. The net gearing ratio fell 3.7ppt YoY in 1H24 to 27.1%.
　　Rapid growth, high dividend yield, and attractive valuation. The company announced that it would pay an interim dividend of HK$0.07/sh, implying an interim dividend yield of 3.4%. We estimate that its dividend yield will reach around 6% in 2024. Looking ahead, we estimate that the company will maintain a growth rate of around 30% in earnings over 2024-2025, given the growth of its business in Hong Kong SAR and Macao SAR. The stock is trading at only 6.1x 2024e P/E. Its valuation is attractive, in our view, given its rapid growth and high dividend yield.
　　Trends to watch
　　Deepening in Hong Kong SAR and Macau SAR, consolidating in Chinese mainland, and focusing on new markets; BIPV business continued to grow. The company maintains its advantageous position in Hong Kong SAR and Macao SAR. According to the company's presentation, it has won the bid for two large commercial projects in West Kowloon and New Central Harbourfront. It has also won the bid for high- end projects on the Chinese mainland (such as the OPPO Dongguan Binhaiwan High-end Talent Housing Project and the Shanghai Sina Headquarters Project).
　　The building-integrated photovoltaics (BIPV) business - The company continues to undertake BIPV projects, as it improves technologies and increases cooperation with specialists in different industries. We think the BIPV business will become a new revenue source for the company over 2026-2030.
　　Financials and valuation
　　We keep our 2024 and 2025 earnings forecasts unchanged. The stock is trading at 6.1x 2024e and 4.7x 2025e P/E. We maintain an OUTPERFORM rating, but cut our target price 23% to HK$2.8 to reflect market-wide weakening risk appetite. Our TP implies 8.2x 2024e and 6.3x 2025e P/E, offering 35% upside.
　　Risks
　　Demand from Hong Kong SAR and Macao SAR and/or orders disappoints.