Key points of investment:

24H1 net profit to mother +4.47% YoY, net margin -0.88pct YoY. (1) 24H1's revenue was 4.068 billion yuan, +10.31% YoY, net profit to mother 0.644 billion yuan, +4.47% YoY, after deducting non-net profit of 0.548 billion yuan, or -9.50% YoY. The year-on-year decline in non-net profit was mainly due to a 10.34% year-on-year decline in revenue from submarine cable systems with high added value in the product structure, accounting for -8.41 pct year on year, while revenue from land cable systems with low gross margin increased 25.9% year on year, accounting for +6.98 pct year on year. (2) 24H1's gross profit margin was 22.43%, year-on-year -6.2pct, net profit margin 15.83%, year-on-year -0.88pct. The cost rate for the 24H1 period was 6.99%, -0.03pct year over year. (3) 24Q2's revenue was 2.758 billion yuan, +22.55% YoY, +110.43%; net profit to mother 0.381 billion yuan, +5.54% YoY, +44.57% month-on-month; gross profit margin 22.52%, -4.61 pct yoy, +0.29pct month-on-month; net profit margin 13.8%, -2.2pct yoy, and -6.29pct month-on-month. The performance was in line with expectations.

Ongoing orders increased 11.3% year over year at the end of July last year, adding 1.8 billion yuan to the UK submarine cable order. (1) As of August 12, 2024, the company's on-hand orders were 8.905 billion yuan, up 11.3% from the end of July last year, including 2,949 billion yuan for submarine cable systems, down 24.7% from the end of July last year, accounting for 33.1%, and 4.523 billion yuan for land cable systems, up 66.7% from the end of July last year, accounting for 50.8%, and 1.433 billion yuan for marine engineering, up 4.5% from the end of July last year, accounting for 16.1%; international orders were close to 16.1% 2.582 billion yuan, estimated mainly for the Inch Cape project (1.8 billion yuan). (2) 24H1's land cable system/submarine engineering business revenue was 2.294/1.485/0.284 billion yuan, respectively, +25.9%/-10.3%/+37.8%, respectively, accounting for 56.4%/36.5%/7.0%, and +6.98pct/-8.41pct/+1.39pct, respectively. (3) The gross margin of the 24H1 submarine cable system was 39.38%, -11.7pct; the gross margin of the land cable system was 9.94%, +1.2pct year on year; the gross margin of the marine engineering business was 33.75%, +10.8pct year on year.

24H1 net operating cash flow improved significantly year over year. As of 24/6/30, the company's inventory was 1.867 billion yuan, +13.4% year over year; contract liabilities were 0.292 billion yuan, +20%; notes receivable were 0.117 million yuan, -67.9%; accounts receivable were 3.03 billion yuan, -0.7% year over year; notes payable were 1.626 billion yuan, +48.5% year over year; accounts payable were 0.922 billion yuan, -11.6% year over year. The company's 24H1 net operating cash flow was 0.481 billion yuan, +0.376 billion yuan, or +358.7% year over year; net investment cash flow -0.297 billion yuan, +0.089 billion yuan over the same period of the previous year, +23.08% year over year; net financing cash flow -0.212 billion yuan, compared to -0.017 billion yuan, -8.71% year over year. The main reason for the change in net operating cash flow is an increase in operating transactions received in the current period.

Profit forecasting and valuation. The company's net profit for 2024-2025 is estimated to be 1.287 billion yuan and 1.74 billion yuan, respectively, and the corresponding EPS is 1.87 and 2.53 yuan/share. Considering the company's leading position in the submarine cable field, high ROE, and potential for overseas market development, the company was given 19-22X PE in 2025, with a reasonable value range of 48.07-55.66 yuan, referring to the valuation gap between the company and comparable companies between 2022 and 2023, giving it a “superior to the market” rating.

Risk warning. The commencement of the Seabreeze project fell short of expectations, competition increased risks, and overseas market development fell short of expectations.