Hongxin Construction and Development Co., Ltd. (the “Company”)'s revenue and profit for the first half of 2024 fell short of expectations. The company's revenue for the first half of 2024 was RMB 4.87 billion, up 15.8% year over year, below our expectations. Gross margin fell to 32.0% (34.1% in the first half of 2023), far below our expectations. Net profit was RMB 0.268 billion, up 13.1% year over year, slightly lower than our expectations. The main reason for lower revenue and gross profit than expected was the decline in revenue from the operating leasing services business, which decreased 24.3% year over year and gross margin fell to 37.1% (39.5% in the first half of 2023). The company attributed the decline in revenue and gross profit to “market price fluctuations for some product lines.” However, as the financial cost ratio fell to 7.8% (10.8% in the first half of 2023), the company's net interest rate fell by only 0.1 percentage point. We will lower our profit forecast and target price in our next corporate report to reflect the cumulative impact of these changes.

The company's engineering services business and asset management and other service businesses maintained strong growth. During the period, revenue from these two business segments increased to RMB 1.95 billion and RMB 1.03 billion respectively, up 70.6% and 84.1% year-on-year respectively. The growth of the engineering technology service business has benefited from the company's active expansion of business scale and expansion of the new mold frame system business. The engineering technology service business serves more than 2,630 projects, including important projects such as Macau's Taipa Wharf, Wellcome National Backbone Cold Chain Logistics Base, and Maojiacun Reservoir. The growth of asset management and other service businesses has benefited from an increase in the number of business partners. Of the 204,800 aerial work platforms operated and managed by the company, 72,635 aerial work platforms were commissioned by external equipment owners to operate and manage the company.

The company's overseas business showed signs of significant expansion. In the first half of 2024, the company achieved overseas revenue of approximately RMB 73 million, an increase of 62% over the previous year. The company's management said that the current stage of overseas expansion is mainly to understand the local market, and profit is a secondary consideration. The number of overseas service online stores increased to 35 (4 in the first half of 2023), and the growth rate far exceeded revenue growth.

The company's capital expenditure reached RMB 4.37 billion, a year-on-year increase of 364.7%. The reason for the increase in capital expenditure is that the company 1) increased the procurement scale of aerial work platforms to maintain the increase in the scale of its own assets and further consolidate its market share; 2) increase the layout of product lines such as special aerial work equipment, material handling equipment, small lifting equipment, and mining equipment. The company said its long-term target for overseas capital expenditure is 30% of total capital expenditure.