Incident: On July 27, the company released the “2024 Semi-Annual Results Report”. During the reporting period, it achieved operating income of 2.958 billion yuan, a year-on-year decrease of 3.61%; net profit attributable to shareholders of listed companies was 0.192 billion yuan, a year-on-year decrease of 22.70%; and the digital cost business achieved revenue of 2.459 billion yuan, an increase of 4.23% year-on-year, in line with market expectations.

The 24H1 external environment is still under pressure, and the digital cost business shows resilience. 1) During the reporting period, the company achieved operating income of 2.958 billion yuan (-3.61%); net profit to mother of 0.192 billion yuan (-22.70%). Despite pressure from the external environment, the downstream construction and real estate industries have not yet risen, and the company's business remained relatively stable. 2) During the reporting period, the digital cost business achieved revenue of 2.459 billion (+4.23%), and Q2 achieved revenue of 1.355 billion (+4.07%) in a single quarter, maintaining operational resilience and steady revenue growth; renewal rates and application rates of cost products increased over the same period last year, and customer stickiness continued to increase; the value of new digital cost products continued to be consolidated, and the application rate continued to increase. Data service products such as bid networks and contract clearance software have caught up with current customer pain points and demand to achieve relatively rapid growth. The cost and digital cost business is still an important cornerstone of the company's steady operation.

The digital construction structure is optimized, and operating efficiency is expected to improve. During the reporting period, the digital construction business achieved revenue of 0.288 billion yuan (-37.46%), Q2 achieved revenue of 0.181 billion yuan (-42.72%) in a single quarter; the digital design business achieved revenue of 0.035 billion yuan (-22.03%), Q2 achieved revenue of 0.029 billion yuan (-22.67%) in a single quarter; and the overseas business achieved revenue of 0.106 billion yuan, an increase of 11.29% over the previous year. The downstream boom is still under pressure. The company actively optimizes product strategies and marketing practices, increases resource investment in key regions, and strictly reduces costs and expenses. Although revenue declined in the first half of the year, the revenue structure improved, and the quality of operations is expected to improve.

Q2 The inflection point of profit has been shown, and cost reduction and efficiency and organizational structure optimization are beginning to bear fruit. During the reporting period, the company focused on strengthening cost control. In the first half of the year, the company strictly controlled all expenses, and sales expenses and R&D expenses declined year-on-year. In the first quarter, the company took the initiative to make adjustments to some of its business, and the related expenses were included in the current management expenses at one time. As a result, management expenses in the first half of the year increased year-on-year, and profits declined in the first quarter. In the second quarter, the effects of business adjustments and cost control gradually paid off. Net profit to mother increased by 44.66% year on year. The inflection point in profit was already evident, and the company's cost reduction and efficiency and organizational structure optimization were beginning to bear fruit.

Focusing on resource allocation in 2024 with a view to steady growth, the company is expected to seize the opportunities of digital transformation of buildings for a long time. 1) From an internal perspective, the company's goal is to resume reasonable and steady growth in 24. The core idea is to further optimize resource allocation and invest resources and energy into core products, key regions, and key customers to achieve effective breakthroughs in the business, and at the same time strictly reduce costs and fees. 2) We believe that the digital transformation of the construction industry is the general trend. The company's strength in products, strategy, and execution is second to none, and it is expected to seize the great opportunities of digital transformation in construction for a long time.

Maintain a “buy” rating. The company's profit declined sharply in 2023, mainly due to a slowdown in external macroeconomic growth, a decline in real estate investment, large-scale adjustments in the internal organizational structure, and the run-in process affecting business development. Taking into account the downstream boom and major trends in the digital transformation of construction, we expect the company to achieve operating income of 6.994, 7.76, and 8.78 billion yuan; net profit of 0.566, 0.862, and 1.095 billion yuan in 2024-2026. Maintain a “buy” rating.

Risk warning: Cost cloud value-added services fall short of expectations, construction informatization falls short of expectations, and downstream spending is affected by macroeconomic fluctuations