Morningstar | 03311 Updated Star Rating from 23 Oct 2018
No-moat China State Construction International reported 2018 third -quarter preliminary results that are on track to meet our full-year estimates. While the group’s nine-month revenue and operating profit growth is slightly behind the interim result, we believe the Chinese authorities’ efforts in stimulating infrastructure investment will benefit CSCI for the remainder of the year. We maintain our fair value estimate of HKD 10 per share, as our long-term operating assumptions for the company are intact.On a quarterly basis, operating income rose 12%, compared with 21% growth for the first half. We attribute CSCI’s slowdown in the third quarter to lackluster joint venture performance and yuan depreciation during the period. On the flip side, the company posted a slight uptick in operating profitability. However, because CSCI does not provide full financials in its preliminary update, we await parent China State Construction Engineering’s third-quarter results for more information.
We continue to echo management's view that Chinese authorities will stimulate the economy by pumping money into infrastructure investment to counter tightening measures on the real estate market and rising pressure from U.S. tariffs. However, we think the stimulus on infrastructure spending will be short-lived, and a further slowdown in the country's infrastructure spending is inevitable over the long term.
China State Construction International Holdings is an investment holding company and provides corporate management services. Through its subsidiaries and associated companies, Co. is engaged in the construction business, project consultancy services, thermoelectricity business, infrastructure project investments, toll road operation, precast structures business, facade contracting business, the manufacture and sale of ready-mixed concrete, property management and the operation of slaughterhouse. As of Dec 31 2014, Co. conducted its businesses through the following reportable segments: Hong Kong, Mainland China, Macau, Overseas and FEG Group.
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