1H24 results slightly missed our expectations
Horizon Construction Development announced its 1H24 results: Revenue rose 16% YoY to Rmb4.87bn, and net profit attributable to shareholders grew 13% YoY to Rmb268mn. Results in 1H24 slightly missed our expectation and market consensus, due to the growing pressure on the operations of the aerial work platform (AWP) business.
The AWP business segment continued to grow rapidly: In 1H24, the number of AWPs under management rose from 178,000 units at the end of 2023 to 205,000 units (+30% YoY). Specifically, the number of self- owned AWPs increased from 121,000 units at the end of 2023 to 131,000 units, and the subleased AWPs increased from 57,000 units at the end of 2023 to 73,000 units. We estimate that revenue of the AWP business segment increased merely around 15% YoY in 1H24, as the occupancy rate fell 7.9ppt YoY to 66% and rents also declined YoY. In particular, we estimate that revenue from subleased AWPs increased by 150% YoY to Rmb744mn.
The engineering technological service business segment grew rapidly: The occupancy rates of support systems and formwork systems increased by 1.9ppt and 5.7ppt YoY to 67% and 76% in 1H24, and revenue from engineering technological services jumped 71% YoY to Rmb1.95bn in 1H24, as the company increased the efforts to undertake engineering projects.
GM was under mild pressure: In 1H24, the blended GM fell 2.1ppt YoY to 32%. Specifically, GMs of operating leasing services and asset management & other services dropped by 2.5ppt and 5.3ppt YoY to 37% and 32%, but GM of engineering technology services rose 6.3ppt YoY to 27%.
Selling expenses increased; financial expenses declined: In 1H24, the period expense ratio fell 2.9ppt YoY to 25.8%. Selling expenses rose 116% YoY, with the selling expense ratio increasing by 2.5ppt YoY, due to increased overseas investments and double-packaged labor services. The financial expense ratio fell 3ppt YoY to 7.8ppt. In 1H24, fundraising cost fell 0.38ppt YoY to 3.99%.
EBITDA grew slightly; profit margin fell: In 1H24, EBITDA rose 2% YoY to Rmb2bn, with EBITDA margin falling 5.6ppt YoY to 41%. Net profit grew 13% YoY, due to the adjustment of the depreciation policy at the beginning of 2024. Factoring out the impact of the aforementioned adjustment, net profit dropped by 31% YoY to Rmb165mn.
Operating cash flow remained stable; capex rose rapidly: Net operating cash flow rose 4% YoY to Rmb1.35bn. Capex increased by Rmb3.4bn YoY to Rmb4.37bn.
Debt-to-asset ratio rose slightly: Due to increased capex, the debt-to- asset ratio reached 68.7% in 1H24, up 3.2ppt from the end of 2023.
First dividend payment: The company announced that it would pay a dividend of HK$0.05/sh in October.
Trends to watch
Rapid consolidation in the domestic AWP industry; overseas business grows rapidly. Looking ahead, we think consolidation will continue in the domestic AWP industry in 1-2 years, given the rapid growth of AWP supply in China, industry-wide growing pressure on the occupancy rates and prices of AWPs, and small- and medium-sized companies facing headwinds in the industry. We expect the company to step up efforts to increase AWPs under management and gain market share. In addition, the company is expanding overseas. It currently has Rmb1bn overseas assets and 400 overseas employees. We expect overseas business operations to become a new growth engine and an earnings source for the company going forward.
Financials and valuation
We cut our 2024 and 2025 net profit forecasts 21% and 24% to Rmb1.05bn and Rmb1.16bn, as demand is under pressure. The stock is trading at 4.3x 2024e and 4.0x 2025e EV/EBITDA. We maintain an OUTPERFORM rating, but cut our target price 33% to HK$2 to reflect the growing pressure on the AWP industry. Our TP implies 4.7x 2024e and 4.3x 2025e EV/EBITDA, offering 35% upside.
Risks
Increased pressure on the operations of the AWP business segment; disappointing overseas expansion.