China State Construction International Holdings Ltd.

The negative outlook on CSCI reflects low visibility over the company's deleveraging in the next 12 months. The ongoing spending on existing investment projects in China will continue to keep CSCI's leverage high. We expect the company's business transition to projects with a shorter cash collection cycle to take time to show effect. CSCI's leverage ratio may fall below our expectation if the company's transition does not go smoothly. We could lower the rating on CSCI if the company's EBITDA interest coverage deteriorates to less than 3x sustainably. This could happen if: CSCI continues to rely on debt to finance investment projects; or The decline in margins caused by its business transition and intensified competition in China exceeds our expectation.

...CSCI's established position in its core markets will support healthy top line growth and steady new order. The company's good reputation, satisfactory project execution record, as well as continuous expansion in mainland China will continue to support its organic growth in 2020-2021. Despite the pandemic disruption, the company's revenue grew by 4% year over year in the first nine months in 2020. Meanwhile, new contract wins during the period dropped by 5% year on year. This is mainly due to active cut in the exposure to public-private partnership (PPP) projects, in our view. As of Sept. 2020, CSCI's order backlog stood at HK$259 billion, more than four times of 2019 revenue, laying a strong foundation for revenue growth over the next two years....

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