Incidents:

The company disclosed 2024Q2 operating data announcement. 2024H1 signed a new contract amount of 37.1 billion yuan, yoy -9%, and 2024Q2 alone signed 15.9 billion yuan, yoy -16%. 2024H1 The domestic cement industry is sluggish, and the capital expenditure capacity of cement companies is weak, leading to a decline in many new domestic signings; compounded by the high overseas signing base, it appears that there is some pressure on the marginal growth rate of new signings. By the end of 2024H1, the company's outstanding contract amount was 59.2 billion, qoq +7%, which is 1.3 times the revenue in 2023, and there are sufficient orders in hand.

Operation and maintenance contracts are growing at a high rate, and engineering/equipment continues to be under pressure year-on-year

By business, the new contracts for 2024H1 engineering/operation and maintenance/equipment were 24.1/8.9/3.3 billion yuan, respectively, yoy -18%/+41%/-15%, respectively, and the 2024Q2 new signatures were 9.6/4.4/1.6 billion yuan, respectively, yoy -26%/+38%/-28%, respectively. New contracts for operation and maintenance continued to grow rapidly, with 2024H1 cement/mine operation and maintenance YOY +6%/+47% respectively.

Engineering and equipment are under pressure due to the high base of 2023H1 and the low growth in the domestic cement industry, and operation and maintenance maintained a good growth intensity. Among them, mine operation and maintenance increased rapidly.

The number of new overseas signings is growing steadily, and the growth rate of operation and maintenance/equipment is impressive

In the subregion, new domestic and overseas 2024H1 signings were 13.6/23.5 billion yuan, respectively, yoy -28%/+9%, respectively, and YOY +18%/-30% for new domestic and foreign signings in 2024Q2, respectively. The 2023H1 overseas signings have a high base (yoy +205%), and the absolute scale of new contracts for 2024H1 remains at a good level. The year-on-year decline of new domestic engineering/operation/equipment contracts continued to decline, mainly affected by the slump in the domestic cement industry. Currently, the profit level of cement companies is at a historically low level. Recently, cement prices in some regions have begun to rise. It is expected that H2 cement companies' capital expenditure capacity or repair will improve, and the year-on-year decline or gradual narrowing of the company's new domestic signings. The high increase in H1 domestic operation and maintenance signings contributed to the main increase in new domestic signings.

Competitiveness continues to improve, business models continue to be optimized, “buy” rating companies are leading service leaders in the global cement industry. The “three-legged” trend of operation, maintenance, equipment and engineering services has basically formed, and business interaction and respective contributions have been continuously strengthened. The continuous promotion of digital intelligence and greening is leading the transformation and progress of the cement industry, the company's competitiveness continues to improve, and the business model is continuously optimized. The company's revenue for 2024-2026 is expected to be 50.5/56.4/63.8 billion, respectively, yoy +10%/12%/13%, respectively, and the net profit forecast is 3.3/3.8/4.3 billion, yoy +13%/14%, and EPS 1.25/1.42/1.62 yuan/share, respectively. We expect the current price to correspond to the company's dynamic dividend rate of about 4.9% (based on the 2024 forecast profit and 40% dividend rate), maintaining a “buy” rating.

Risk warning: The decline in the cement industry exceeds expectations, overseas business expansion falls short of expectations, operation and maintenance equipment business development falls short of expectations, risk of exchange rate fluctuations