Sichuan Road & Bridge: Navigating Declining Profits Amid Strategic Diversification in a Fragile Sector

Sichuan Road & Bridge Group Co., Ltd. (600039.SS) finds itself at a crossroads in 2025. The company’s financial performance has been marred by declining profits and a fragile construction sector, yet its strategic pivot toward green energy and international infrastructure projects offers a glimmer of hope. This article assesses whether the firm can execute its transformation while managing a debt-laden balance sheet and macroeconomic headwinds.

A Sector in Turmoil

China’s construction industry has faced a perfect storm in 2025. Real estate-driven demand has collapsed, with construction starts down 65% since 2019 [1]. Sichuan Road & Bridge’s Q1 2025 results reflect this: net income fell 28% to ¥1.77 billion, while revenue dropped 35% to ¥22.99 billion [1]. A debt-to-equity ratio of 139%—far above industry averages—compounds these challenges, leaving the firm vulnerable to liquidity shocks [1].

Green Energy as a Strategic Lifeline

Amid this turmoil, Sichuan Road & Bridge has aggressively pivoted to green energy, now accounting for 40% of its revenue [1]. Key projects include a 500 MW solar park in Gansu and hydropower initiatives in Yunnan, aligning with China’s 14th Five-Year Plan and net-zero goals [5]. These projects are expected to contribute 15–20% of revenue by 2026 [5]. The company has also secured ¥34.68 billion in infrastructure contracts for 2025, including a ¥3 billion road project in Vietnam under the Belt and Road Initiative (BRI) [5].

However, profitability remains elusive. The firm’s net margin of 6.72% lags behind peers, and operating cash flow is insufficient to cover debt obligations [1]. While green energy projects are capital-intensive, their ROI metrics are not disclosed, raising questions about their ability to offset declining traditional construction revenue [5].

Debt Restructuring and Cost-Cutting Measures

To stabilize its balance sheet, Sichuan Road & Bridge has implemented AI-driven cost-reduction tools, aiming for 8–10% savings in construction operations [5]. The company has also secured a letter of commitment for special loans to fund stock repurchases, signaling active engagement in financial restructuring [4]. Yet, its debt burden—CN¥53.3 billion in net debt [2]—remains a critical risk.

The BRI offers a potential lifeline. In 2025 H1, BRI-related green energy investments reached USD 9.7 billion, with Sichuan Road & Bridge’s Vietnam project aligning with this trend [3]. However, the BRI’s broader focus on fossil fuel and extractive projects (USD 44 billion in 2025 H1) suggests green energy remains a niche within the initiative [5].

Execution Risks and Geopolitical Uncertainties

The company’s success hinges on its ability to execute its green energy pivot while managing rising input costs and geopolitical risks. For instance, the Vietnam project faces exposure to regional political tensions and currency fluctuations. Additionally, China’s fixed-asset investment in construction grew only 5.8% in Q1 2025, underscoring the fragility of domestic demand [5].

A would provide clarity on its financial resilience. For now, the firm’s P/E ratio of 10.4x remains below market averages, reflecting investor skepticism about its transformation [4].

Conclusion

Sichuan Road & Bridge’s strategic shift to green energy and BRI projects is ambitious but fraught with challenges. While its 40% revenue contribution from green energy and AI-driven cost cuts are positive steps, the company’s high debt load and weak cash flow coverage remain existential risks. Investors must weigh the potential of its green energy pivot against the fragility of its execution and the broader construction sector’s downturn.

Source:
[1] Sichuan Road & Bridge (SS:600039) Annual Report, [https://uk.investing.com/equities/sichuan-road-financial-summary]
[2] Sichuan Road & Bridge GroupLtd (SHSE:600039) Takes..., [https://www.moomoo.com/news/post/57068228/sichuan-road-bridge-groupltd-shse-600039-takes-on-some-risk]
[3] China Belt and Road Initiative (BRI) investment report 2025 H1, [https://greenfdc.org/china-belt-and-road-initiative-bri-investment-report-2025-h1/]
[4] Sichuan Road & Bridge Group Co., Ltd.: Announcement on Obtaining Letter of Commitment for Special Loans for Stock Repurchase from Financial ..., [https://cbonds.com/news/3528579/]
[5] Sichuan Road & Bridge: A Fragile Recovery Amid Strategic Shifts, [https://www.ainvest.com/news/sichuan-road-bridge-fragile-recovery-strategic-shifts-2505/]