Recently, the company released its 24-year annual performance report. In the first half of the year, it achieved operating income of 2.96 billion yuan (-3.6% YoY), net profit of 0.19 billion yuan to mother (-22.7% YoY), and net profit of 0.17 billion yuan (YoY -17.4%) after deducting non-return to mother net profit of 0.17 billion yuan (YoY -17.4%). The company's digital cost highlights operational resilience and maintains a buying rating.

Key points to support ratings

The net profit of the mother declined due to the increase in management expenses, and the effect of cost control in the second quarter was evident. Affected by the decline in revenue from digital construction and digital design businesses, the company's revenue declined slightly year-on-year in the first half of the year. The expected year-on-year decline in net profit due to the company's business adjustments in the first quarter, and related expenses incurred were included in the current management expenses in one go, leading to a year-on-year increase in management expenses. However, the company strengthened cost control, and the effects of business adjustments and cost control gradually became apparent. Net profit returned to mother increased by 44.7% year-on-year in the second quarter.

Digital costs highlight operational resilience and steady revenue growth. Digital costs achieved revenue of 2.46 billion yuan in the first half of the year (+4.2% year over year). Among them, renewal rates and application rates for low-cost products have all increased compared to the same period last year, and customer stickiness continues to increase. The value of new digital cost products continues to be consolidated, and the application rate continues to increase; data service products such as index networks and tender clearance software have caught up with current customer pain points and demand to achieve relatively rapid growth.

The revenue structure of digital construction continues to improve, and the development of digital design products continues to advance. Digital construction achieved revenue of 0.29 billion yuan in the first half of the year (-37.5% YoY). The company actively optimizes product strategies and marketing practices, provides project-level standardized products, and increases the share of self-developed software and hardware. Despite the decline in overall revenue from digital construction, the share of products such as material management, labor management, and intelligent hardware has increased, and the revenue structure has improved. The digital design business achieved revenue of 0.04 billion yuan in the first half of the year (-22.0% YoY).

A total of 335 digital road design products have entered the market, 617 projects have been launched, and the design of 402 projects has been completed using this product. A total of 267 digital housing design products have entered the market, 399 projects have been launched, and 219 projects have been completed using these products.

valuations

The estimated net profit for 24-26 will be 6.7, 8.6, and 1.02 billion yuan (considering the impact of the company's management expenses in the first quarter, a reduction of 34%-35%), EPS will be 0.40, 0.51, and 0.61 yuan, and corresponding PE will be 26X, 20X, and 17X, respectively. The company's digital cost highlights operational resilience and maintains a buying rating.

The main risks faced by ratings

Customer demand falls short of expectations; business development falls short of expectations; technology research and development falls short of expectations.