Shen Wan Hongyuan: 25H1 building decoration industry revenue and profits are under pressure, and it is expected that the second half of the year will see a recovery in corporate revenue data

The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that revenue and profits are under pressure, cash flow has improved, and the building decoration industry has maintained an “optimistic” rating. 2025H1 infrastructure investment is still under some pressure. In this context, enterprises are actively shrinking their scale and focusing on cash repayment and cost control. Affected by this, the revenue of some large construction companies declined year-on-year, but operating cash flow showed an improvement trend. Looking ahead, the bank believes that under pressure from the external environment, domestic investment stimulus expectations are still strong. The construction of “dual” projects represented by the central financial administration is expected to accelerate, and the enterprise side is also strengthening its own management and streamlining costs. It is expected that the second half of 2025 will see a recovery in corporate revenue data and further improvement in cash flow.

Shen Wan Hongyuan's main views are as follows:

2025H1 Construction Industry Revenue and Profits Under Pressure

Major listed companies in the 2025H1 construction industry achieved operating income of 3.75 trillion yuan, -5.7% year-on-year, net profit of 87.5 billion yuan, -6.5% year-on-year, 2025Q1/Q2 revenue of 1.84 trillion/1.91 trillion yuan, respectively, and net profit of 44.4 billion yuan/43.1 billion yuan, respectively. Overall, the revenue and profits of construction companies were under pressure in the first half of 2025, which is related to construction companies taking the initiative to slow down scale growth and focus on improving asset quality in accordance with the market situation.

2025H1 industry's gross profit margin and net interest rate are relatively stable

The gross profit margin of the 2025H1 industry was 9.9%, -0.2pct compared to the same period last year, 2.33% net profit margin, and -0.02pct compared to the same period last year. On a quarterly basis, 25Q1/Q2 gross profit margin was 9.1%/10.7%, respectively -0.1 pct/-0.3 pct year on year, and 2.4 1%/2.26% year-on-year net profit margin, -0.07 pct/+0.03 pct year on year, respectively. The gross profit margin and net interest rate of the 2025H1 industry are relatively stable. The main reason is that companies have strengthened cost control, and the scale of expenses and impairment has shrunk.

2025H1 operating cash flow improved

The net operating cash flow of the 2025H1 industry was 477.4 billion yuan, with a year-on-year decrease of 15.1 billion yuan. On a quarterly basis, 25Q1/Q2 construction companies' net operating cash flow changed year-on-year to 10.3 billion /+15.1 billion yuan. The 25Q1/Q2 revenue ratio was 103%/87%, respectively, with a year-on-year change of +0.85pct/+11.65pct, and the payout ratio was 123%/91%, respectively, with a year-on-year change of +1.00pct/+13.98pct, respectively. The bank believes that benefiting from local government debt conversion policies and enhanced cash flow control by enterprises, the 2025H1 industry's operating cash flow improved year-on-year, but it is still necessary to pay attention to the availability of subsequent debt conversion and financial resources.

2025H1 industry RoE year-on-year -0.31pct

The overall ROE of the 2025H1 industry was 2.50%, 0.31pct year on year. Among them, the industry deducted non-net interest rate -0.11pct year on year, total asset turnover ratio -0.04 year on year, and equity multiplier +0.26 year-on-year. The profitability of the sector behind the downward pressure on industry investment is under pressure. The bank believes that investment in the industry has weakened, and that the industry's ROE is under pressure due to the combined impact of the increase in corresponding expenses and impairment behind the pressure on enterprises to repay.

Risk warning: Economic recovery fell short of expectations, infrastructure investment fell short of expectations, and orders from listed companies fell short of expectations.