JPMorgan has issued a research report downgrading China State Construction International (03311) from "Neutral" to "Underweight", with the target price reduced from HK$8 to HK$7, based on a projected 2028 price-to-book ratio of 0.4 times. While management maintains a 35% dividend payout ratio, the interim dividend has still declined year-on-year to HK$0.33 per share due to falling earnings, making dividend support insufficient.

JPMorgan notes that China State Construction International's first-half performance this year fell significantly short of expectations, with net profit after tax declining 18% year-on-year to RMB 4.3 billion, below management's earlier guidance for stable growth at the start of the year and clearly missing investor expectations. During the period, revenue fell 23% year-on-year to RMB 43.9 billion, and although gross margin expanded by 3.6 percentage points year-on-year to 18.6%, it was still insufficient to offset the substantial impact of the revenue decline.

All major market segments showed notable declines: mainland China fell 21% year-on-year, Hong Kong dropped 25%, Macau decreased 8%, CSC Development declined 22%, and joint venture profits plunged 63%. The report indicates that although management expressed expectations at the results meeting for full-year earnings to remain flat year-on-year, this would imply a roughly 28% year-on-year increase in second-half earnings, which the bank considers extremely difficult to achieve given historical seasonal factors, overall weak business conditions, softening infrastructure demand in mainland China, and slower conversion of backlog orders.

The company's earnings have shown no growth over the past two years, and first-half results this year only accounted for half of last year's full-year profit, still down 18% year-on-year, clearly indicating insufficient earnings recovery momentum. JPMorgan has lowered its net profit after tax forecasts for 2026 to 2028 by an average of 10%, expecting return on equity to decline to approximately 10%.