Profit Slump in Power Construction Corporation of China: A Sector-Wide Warning or a Temporary Setback?

The 13.8% year-over-year net profit decline reported by Power Construction Corporation of China (PCCCL) in H1 2025 has sparked debate about whether this reflects broader sector-wide challenges or a temporary misalignment in the company’s strategy. To assess this, we must dissect PCCCL’s financials, compare its performance with peers like China Longyuan Power, and evaluate macroeconomic and policy-driven headwinds.

PCCCL’s Profit Decline: Operational Inefficiencies or External Pressures?

PCCCL’s H1 2025 earnings reveal a complex picture. While revenue grew by 1.61% year-on-year to RMB 1.427 trillion, net profit fell sharply, driven by a 194.35% debt-to-equity ratio and operating expenses of CNY135.52 billion in Q1 2025 [1]. The company’s trailing twelve-month (TTM) net profit margin of 1.90% and return on investment of 5.72% further highlight margin compression [2]. This suggests that the profit slump is not merely a result of declining demand but stems from cost overruns and heavy debt servicing.

In contrast, China Longyuan Power, a peer focused on wind and coal power, also reported a 13.8% net profit decline but managed to improve its profit margin to 20% through cost-cutting [3]. This divergence indicates that PCCCL’s challenges are more structural—its reliance on high-debt financing and rising operational costs may be amplifying sector-wide pressures.

Sector-Wide Challenges: Policy Shifts and Cost Volatility

The Chinese power construction sector is navigating a dual transition: decarbonization and cost inflation. PCCCL’s pivot to renewables—wind and hydro contracts surged 68.78% and 66.67% year-on-year, respectively—aligns with national 14th Five-Year Plan goals [4]. However, thermal and solar power contracts plummeted by 62.03% and 28.55%, reflecting waning demand for traditional energy sources [5].

External factors exacerbate these pressures. China’s export restrictions on rare earth elements and antimony have disrupted supply chains for renewable technologies [6], while U.S. tariffs in Q2 2025 have slowed export-driven sectors. Meanwhile, Beijing’s push for carbon-neutral construction standards and renewable material mandates is increasing upfront costs for firms like PCCCL [7].

Comparative Resilience: PCCCL vs. China Longyuan Power

Despite shared challenges, PCCCL’s international expansion offers a counterbalance. Overseas contracts grew 17.5% year-on-year, outpacing domestic growth by 5.5 times, driven by Belt and Road Initiative (BRI) projects in Africa and Central Asia [8]. This diversification contrasts with China Longyuan Power’s domestic-centric model, where wind and solar growth (10.52% and 76.55% year-on-year, respectively) has not offset coal-related declines [9].

However, PCCCL’s high leverage remains a critical risk. Its debt-to-equity ratio of 194.35% [1] far exceeds Longyuan’s more conservative capital structure, making it more vulnerable to interest rate hikes and liquidity constraints.

Long-Term Investment Implications

The sector’s long-term outlook hinges on two factors: the pace of renewable adoption and the ability to manage debt. PCCCL’s aggressive BRI investments and renewable contracts position it to benefit from China’s green transition, but its financial health will depend on deleveraging and cost optimization. For China Longyuan Power, the focus on wind power and improved margins suggest resilience, though coal’s declining role remains a drag.

Investors should monitor policy developments, particularly subsidies for renewables and regulatory easing on debt. The global wind power EPC market, projected to grow at 9.8% CAGR through 2033 [10], offers a tailwind for both firms, but PCCCL’s execution will need to improve to avoid margin erosion.

Conclusion

PCCCL’s profit slump is a mix of internal inefficiencies and external sector-wide challenges. While its renewable pivot and international expansion are strategic strengths, its debt burden and cost structure pose significant risks. For the broader sector, the transition to renewables is inevitable, but companies must balance growth with financial discipline. Investors should approach PCCCL with caution, prioritizing its long-term green energy potential while hedging against short-term volatility.

Source:
[1] Power Construction Corporation of China H1 net profit down 13.8% Y/Y [https://www.marketscreener.com/news/power-construction-corporation-of-china-h1-net-profit-down-13-8-y-y-ce7c50ddd88ef224]
[2] Power Construction Corp of China Ltd - Financials [https://www.investing.com/equities/cn-power-const-financial-summary]
[3] China Longyuan Power Reports Decline in First Half 2025 [https://www.theglobeandmail.com/investing/markets/stocks/CLPXF/pressreleases/34271266/china-longyuan-power-reports-decline-in-first-half-2025-financial-results/]
[4] In the first half, the Power Construction Corporation of China [https://news.futunn.com/en/post/59415515/in-the-first-half-the-power-construction-corporation-of-china]
[5] China Belt and Road Initiative (BRI) investment report 2025 H1 [https://greenfdc.org/china-belt-and-road-initiative-bri-investment-report-2025-h1/]
[6] China's Raw Material Export Restrictions: A Critical Challenge for US Importers in 2025 [https://www.eezyimport.com/chinas-raw-material-export-restrictions-a-critical-challenge-for-us-importers-in-2025/]
[7] Construction Law 2025 - China - Global Practice Guides [https://practiceguides.chambers.com/practice-guides/construction-law-2025/china/trends-and-developments]
[8] China Longyuan Power: Riding the Renewable Wave [https://www.ainvest.com/news/china-longyuan-power-riding-renewable-wave-short-term-volatility-2507/]
[9] Wind Power EPC Market 2026 | Size, Innovation, Strategy [https://www.linkedin.com/pulse/wind-power-epc-market-2026-size-innovation-strategy-twz8f]