Key points of investment

Event: The company released its 2024 quarterly report. 2024Q1 achieved operating income of 274.95 billion yuan, +0.5% year on year, net profit to mother of 6.03 billion yuan, +2.0% year on year, net profit after deducting non-return to mother of 5.78 billion yuan, +2.0% year on year.

The gross margin level is relatively stable, and the net profit margin due to mother increased slightly: (1) 24Q1 achieved a comprehensive gross profit margin of 7.79%, with sales, management/R&D/finance expense ratios of 0.6%/2.1%/1.0%/0.5%, respectively, and -0.03/+0.07/-0.04/+0.1pct, respectively. The increase in financial expense ratios was mainly due to increased interest expenses; (2) 24Q1's asset/credit impairment losses were -1.7/-290 million yuan, respectively, over the previous year. Raised 180 million yuan; under comprehensive influence, the company's 24Q1 net profit margin was 2.19%, +0.03pct year on year;

Net cash flow from operating activities was slightly under pressure, and the balance ratio increased slightly. (1) The 24Q1 company's net cash flow from operating activities was -46.59 billion yuan, with a year-on-year increase of 7.38 billion yuan, and the payout ratio was 104.8%/119.6%, respectively, -1.2/+1.3pct; (2) By the end of the first quarter, the company's interest-bearing debt balance was 399.5 billion yuan, up 61.12 billion yuan from the end of 23Q4, and the balance ratio was 75.6%, +0.1 pct year over year.

24Q1 new orders grew steadily, and the order structure was adjusted: (1) The 24Q1 company achieved a new contract amount of 55.69 billion yuan, +1.5% over the same period. By business, engineering contracting/investment and operation/green environmental/industrial manufacturing/industrial finance/emerging industry businesses achieved new contract amounts of 4101/464/277/69/23/3.8 billion yuan respectively, +3%/+5%/+5%/+117%. The company accelerated the pace of green transformation, and the scale of green environmental protection business orders grew rapidly; design consulting The real estate development/material logistics business achieved a year-on-year increase of 58,137/34 billion yuan, respectively. The total number of project tenders affected by the market decreased in the design consulting business, and the real estate development business was affected by the continued decline in the market, and the company slowed down the pace of product listing and promotion; (2) in the infrastructure business, the amount of new contracts signed for housing engineering, mining, water transportation, and power engineering all increased by more than 40% year on year. Railway engineering and highway engineering were reduced by market tenders, and the scale of new contracts declined markedly; (3) Looking at companies in 24 regions, the scale of new contracts was significantly reduced. Q1 The amount of newly signed contracts at home and abroad was 516.7.4/33.95 billion yuan respectively, +1.5%/+11.9% year-on-year respectively.

Profit forecast and investment rating: Recently, the Development and Reform Commission completed the 2024 special bond screening process. It is expected that subsequent issuance will be accelerated and fiscal policies will be strengthened. State-owned enterprise reforms will improve the quality of the company's operations. The implementation of political and economic policies related to the “Belt and Road” will boost construction companies' overseas business growth expectations, and the holding increase in controlling shareholders' holdings shows confidence in future development. Based on the pressure on the real estate business, we adjusted the company's 2024-2025 net profit forecast to 274.0/31.07 billion yuan (previous value was 31.28/34.5 billion yuan), adding the 2026 forecast to 34.25 billion yuan. The price-earnings ratio corresponding to the closing price on April 30 was 4.2/3.7/3.4 times, respectively, maintaining the “buy” rating.

Risk warning: the risk that the growth rate of infrastructure investment falls short of expectations; the risk that the “Belt and Road” boosting overseas business falls short of expectations; the risk that state-owned enterprise reforms fall short of expectations; and that new business expansion falls short of expectations.