J.P. Morgan: China Railway Group’s third-quarter profit falls as mining growth offsets infrastructure weakness

Why did third-quarter profit fall faster than revenue?

In the third quarter of 2026, China Railway Group’s revenue fell 7% year on year to 244 billion yuan, while net profit attributable to shareholders fell 33% to approximately 3.8 billion yuan. JPMorgan attributed the weak performance to soft infrastructure demand, slower project conversion and pressure on non-core profits.
Infrastructure construction revenue fell 9% year on year, while design and consulting revenue fell 12%. The group’s gross margin remained broadly stable at 9.2%, and operating expenses fell 11%, showing that core project execution and cost control remained resilient even as revenue came under pressure.
On the income statement, other net losses widened in the third quarter, and the share of results of associates and joint ventures swung from a profit in the same period a year earlier to a loss. Pretax profit fell 22% year on year, while income tax expense rose 23%.

In the first three quarters of 2026, resources revenue rose 38% year on year to 86.1 billion yuan, accounting for approximately 12% of group revenue. Gross margin rose to 67%, up 7.9 percentage points year on year. Higher mineral prices and stable costs together boosted profitability.
Management said resources business profit in the first three quarters had already exceeded the full-year figure for 2025, with copper, molybdenum and lead-zinc as the main drivers. JPMorgan therefore believes mining gives the company a more meaningful earnings hedge than its engineering and construction peers.
The company plans copper production of approximately 300 thousand tonnes, molybdenum production of approximately 14 thousand to 15 thousand tonnes, and lead-zinc production of approximately 25 thousand tonnes in 2026.

New contracts signed in the first three quarters of 2026 fell 13% year on year. Management expects fourth-quarter seasonal factors, policy-driven projects and urban renewal demand to potentially support an order catch-up by year-end.
Overseas performance diverged: Africa fell 44% year on year, the Americas fell 33%, and Asia grew 34%. Management attributed the weakness in the first two regions to timing factors including conflicts, tighter compliance requirements and slower project approvals.
Cash collection remains the top priority. In the first three quarters, the company recovered 54.2 billion yuan in overdue receivables from three categories of key projects, but operating cash flow recorded a net outflow of 83.6 billion yuan as supplier payments were accelerated and funding from project owners remained delayed; the net outflow was 72.9 billion yuan in the same period a year earlier. Although the third quarter alone recorded a net inflow of 3.1 billion yuan, it remained below the 6.7 billion yuan recorded a year earlier.

Citing lower construction margins, slower order conversion and higher financing costs, the bank cut its forecasts for net profit attributable to shareholders for 2026–2028 by 9%–10%. It lowered its H-share target price from 4.60 Hong Kong dollars to 4.00 Hong Kong dollars and its A-share target price from 6.50 yuan to 5.70 yuan, maintaining Overweight ratings on both.
JPMorgan believes the low valuations already reflect the weak outlook for margins and return on equity, while growth in resources earnings can provide support. By its estimates, the H and A shares trade at approximately 0.2 times and 0.3 times book value, respectively, with expected dividend yields for 2027 of approximately 4.8% and 3.1%, respectively.