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　　机构：银河证券

　　评级：增持

　　目标价：11.60港元

　　HK/Macau and China business revenue growth slowed down in 2H17: The recurring netprofit of HK$5,044m in 2017 was 7% below our and consensus earnings estimates, led mainlyby a decline in HK business revenue in 2H17. CSCI reported that total revenue grew 8.5% YoYin 2017 vs. revenue growth of 21.6% YoY in 2016 and 21.9% YoY in 1H17. HK business revenuefell 36.6% YoY in 2H17, causing revenue in this segment to decline 14.6% YoY in 2017.Since many of its HK projects came to an end in 2H16, this led to a high base for revenue comparisonwith 2017. CSCI’s China infrastructure investment growth also slowed down, from48.2% YoY in 1H17 to 38.3% YoY in 2017, but this was within market expectations. CSCI’sgross profit margin rose from 14.2% in 1H17 to 15.2% in 2017, led by margin expansion of itsHK and China business segments and an improving revenue mix.

　　No concern about further earnings growth slowing down in 2018E: CSCI’s order backlogat the end of 2017 reached HK$188bn, equivalent to 3.8x 2017 revenue. CSCI’s China businesswill remain the key growth driver in 2018. We expect the PPP infrastructure investmentpace to gradually recover after the NDRC completes the review of all existing PPP projects in1H18. CSCI booked strong growth in new contract wins in its social housing business segmentin 2017. Since it falls under government purchasing service, social housing investment will notsuffer from the slowdown in PPP investment. For its HK business, CSCI reported new contractwins growth of 19.0% YoY in 2017, which was largely in line with the growth rate of 19.6% YoYin 2016. We think the business revenue decline in 2017 was only temporary. We expect its HKbusiness growth to recover in 2018, considering the strong pipeline of the HKSAR government’smega infrastructure projects. Overall, we expect its total revenue to grow 17.8% and16.5% YoY in 2018E and 2019E, respectively.

　　Operating cash flow remains an overhang to a share price rerating: CSCI’s operatingcash flow deteriorated further in 2H17. The increasing exposure to its social housing developmentbusiness should help shorten the cash conversion cycle and improve operating cash flowin 2018. CSCI is also striving to lower its leverage and improve its asset turnover via financinginnovations in 2018, such as asset securitization and an infrastructure investment fund. But thecash flow situation in 2H17 suggests it will likely take longer than the market expects for CSCIto improve its operating cash flow. We believe the market will take more cautious view ofCSCI’s cash flow situation in 2018 despite the positive earnings growth outlook.

　　Maintain Hold on CSCI: We cut out TP from HK$12.70 to HK$11.60, based on 1) our earningscut of around 5%, and 2) our lower target PER multiple from 10x to 9x. 

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