24Q2 revenue/net profit to mother was +1.8%/-9.0%, maintaining that the “purchase” 24H1 company achieved revenue/net profit of 1.25/0.21 billion yuan, +1.5%/-3.2% year over year. Of these, 24Q2 revenue/net profit to mother was 0.64/0.1 billion yuan, +1.8%/-9.0% year over year, and revenue continued to grow steadily. We believe that the company has sufficient orders in hand, and equity incentives are expected to promote the company's stable and high-quality development. The company's net profit for 24-26 is estimated to be 0.49/0.55/0.61 billion yuan (CAGR +11.6%). Comparatively, the average expected value of the company Wind corresponds to 0.84 xPEG in 24. We believe that the company's rail transit design industry has a higher barrier pattern, and that equipment updates and the low-altitude economy are expected to bring new growth space to the company, giving the company 1.15 xPEG in 24, with a target price of 15.97 yuan, maintaining a “buy” rating.

24H1's revenue grew steadily, and 24H1's overseas business revenue share and gross margin increased significantly. 24H1's survey/design/planning consulting/general contracting revenue was 1.07/0.06/0.12 billion yuan, +2.1%/-44.8%/+55.7% year-on-year, of which revenue within and outside Guangdong Province was 0.81/0.44 billion yuan, -12.5%/+43.3% YoY, and the share of revenue from outside the province increased to 35.4%. The company also announced the establishment of an overseas division, and the overseas business is expected to expand at an accelerated pace. 24H1's gross profit margin was 36.5%, or 2.8 pct year on year. Among them, the gross margin of survey and design decreased by 4.2 pct year on year. We expect the share of business outside the province with relatively low gross margin to increase. 24H1's gross profit margin within the province/outside the province increased 38.8%/32.4%, -5.9/+9.2 pct year on year, and the gross margin of the overseas business increased dramatically.

The interest-bearing debt ratio and financial expense ratio increased, and the net operating cash flow was still under pressure on 24H1's period expense ratio of 14.1%, -0.3 pct. Among them, sales/management/R&D/finance expenses rates were 2.3%/7.2%/4.6%/-0.1%, respectively, -0.4/+0.2/-0.7/+0.5pct. The decrease in R&D expenses was mainly due to a decrease in R&D employee salary expenses. The increase in the financial expense ratio was mainly due to a decrease in interest income and an increase in interest expenses on loans. At the end of 24H1, the company's balance ratio/ interest-bearing debt ratio was 55.2%/10.5%, respectively, +0.7/+3.9 pct. The increase in interest-bearing debt ratio was mainly due to a marked increase in short-term loans. 24H1's net operating cash flow was -0.6 billion yuan, +0.004 billion yuan year on year, and Q2 net operating cash flow was -0.09 billion yuan, +0.05 billion yuan year on year. Cash flow was still under pressure but improved in Q2.

Revitalize rail transit equipment and actively expand the low-altitude economy

In April '24, the Guangzhou Municipal Government issued the “Guangzhou Municipal Implementation Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, which mentions supporting the upgrading and transformation of existing rail transit line vehicles, station equipment, line tracks, etc. Intelligent and efficient air conditioning systems with independent intellectual property rights can carry out energy-saving transformation of existing subway lines, and are expected to benefit from rail transit equipment renewal and transformation in the future. According to the company's official account, the company obtained the “Civil Unmanned Aircraft Operation Certificate” in June, indicating that the company is qualified to officially carry out operational drone flight activities. In the future, the company will actively explore innovative and integrated businesses of rail transit and the low-altitude economy, such as low-altitude photography, intelligent urban patrol, “tarmac”, “track+low-altitude logistics”, and integrated low-altitude service management platforms, which are expected to open up new growth points.

Risk warning: Project progress falls short of expectations; rail transit construction falls short of expectations; inventory renovation falls short of expectations.