兴业证券-中国建筑-601668-Q2 Sees 20% Growth in Revenue, Cash Flow Continues to Improve-200923

　　中国建筑(601668)
　　Company ProfileChina State Construction Engineering Corporation is the Chinese leading building and civilengineering works group. The activity is organized around three sectors: - construction of buildings:houses, hotels, stadiums, hospitals, etc.; - development and promotion of residential real estateassets; - construction of infrastructures: roads, highways, airports, railways, bridges, petrochemicalplants, nuclear plants, etc.(Source: Reuters)CommentsThe accumulative amount of newly signed contracts in the construction business reached CNY 1329.4billion, an increase of 6.2% year on year in the first half of 2020, with a year-on-year decrease of 4.3% inQ120 and a year-on- year increase of 15.45% in Q220. The great growth in the second quarter wasmainly attributed to the significant recovery of buildings construction orders growth and thecontinuously rising momentum of infrastructure construction orders.The construction of buildings saw an 8.9% YoY decline in Q120 and a 13% YoY rise in Q220.The construction of infrastructure saw a year-on-year increase of 34.9% in newly signed orders inApril, 31.7% in May and 22.7% in June.China State Construction Engineering Corporation (the company) made CNY 728.188 billion in revenuein H120, an increase of 6.24% from the previous year. The performance was mainly thanks to arelatively high growth of new contract amount and the smooth advance of construction in progress.The revenue registered a year-on-year decline of 11.34% in Q120 and a year-on-year increase of19.73% in Q220, with an obvious rally in the growth in the second quarter.The income from the construction of buildings, the construction of infrastructure, the real estatebusiness, stood at a year-on-year rise of 7.5%, 2.9% and 12.4%, respectively, while the revenue fromthe design and other businesses recorded a year-on- year decrease of 20.3% and 7.6%, respectively.
　　The integrated gross margin in H120 was 10.96%, rising 0.83 percentage points from a year earlier, withan increase in the construction of buildings and construction of infrastructure.
　　The net profit rate was 4.52%, down 0.17 percentage points from the previous year. The expense rateduring the reporting period was 4.28%, up 1.06 percentage points from a year earlier, with the R&Dexpense and financial expense seeing a rise.
　　The impairment of assets and credits accounted for 0.52% of the revenue, up 0.48 percentage pointsfrom a year earlier.
　　The net operating cash flow per share registered a loss of CNY 1.69 in H120, up CNY 0.29 per sharefrom the previous year, with an increase of CNY 0.17 to recorded a loss of CNY 2.17 in Q120 and agrowth of CNY 0.12 to CNY 0.49 in Q220, showing a year-on-year improvement in cash flow for twoconsecutive quarters.
　　The company kept leading edges in the policy-backed fields including fabricated architecture,intelligent construction and green buildings, and boasted competitive edges covering the entireindustrial chain.
　　The company’s annual production capacity of steel structure and PC reached 1.2 million tons and 4million tons, respectively.
　　Earnings forecast and investment recommendation
　　 We remain our earnings forecast for the company and estimate its EPS to be CNY 1.07/ CNY 1.19/CNY 1.32 for 2020/2021/2022, implying a P/E ratio to be 4.8x/ 4.3x/ 3.9x, respectively, based on theclosing price on August 27th. Reiterate “Outperform”.
　　Potential risks
　　downward risks of macro economy; less-than-expected investment in the infrastructure;less-than-expected sales volume of real estate; slower-than-expected delivery of orders at hand;slower-than-expected overseas business expansion