Incident: On August 23, 2024, the company released its 2024 semi-annual report. 24H1 achieved revenue of about 20.895 billion yuan, +1.68% year over year, realized net profit of about 1.399 billion yuan, +2.28% year over year, and realized net profit without return to mother about 1.402 billion yuan, +5.97% year over year; looking at a single quarter, 24Q2 achieved revenue of about 10.607 billion yuan, +0.68% year-on-year, +3.10% Net profit attributable to mother was approximately 0.763 billion yuan, +1.61% year over month, and realized net profit without return to mother was about 0.748 billion yuan, +0.95% year over year, and +14.37% month on month.

Gross profit margins continued to rise, and increased exchange losses affected financial expenses. 24 In the first half of the year, the company's settlement revenue maintained a slight increase due to insufficient domestic demand, unstable external demand, and small currency exchange rate fluctuations. Among them, engineering technology services, high-end equipment manufacturing, and production and operation services achieved revenue of about 12.099, 2.916, and 5.673 billion yuan respectively, +4.82%, -23.07%, and +22.22%, respectively. Looking at the profit situation, 24H1's comprehensive gross margin was about 19.39%, +1.04pct. Among them, the gross margins of engineering technology services, high-end equipment manufacturing, and production and operation services were 15.54%, 23.25%, and 21.93%, respectively, +0.62, -0.51, and +3.18 pct, respectively. Profitability continued to increase steadily. 24H1's expense ratio was about 10.49%, +0.93pct year on year. Among them, the sales/management/R&D/finance expenses rates were 1.17%/4.80%/3.46%/1.05%, respectively, -0.07/+0.59/-0.32/+0.74pct, respectively. The increase in financial expenses was mainly due to exchange gains from the appreciation of the US dollar and the euro in the first half of '23. 24H1 lost about 0.217 billion yuan, +295.35% year over year. We believe that as the company strengthens exchange rate risk management for small currencies, it is expected that the impact of exchange rate fluctuations on performance will be reduced.

The decline in the growth rate of new orders signed in 24H1 was mainly due to the impact of the base figure, and the steady growth of new overseas orders was maintained. The amount of new contracts signed by the company in the first half of 2024 was about 37.09 billion yuan, or -9%, of which the amount of new contracts signed domestically was about 13.628 billion yuan, -28%; the amount of new contracts signed abroad was about 23.462 billion yuan, +9% year-on-year. As of the end of June 24, the company's unfinished contract amount was about 59.244 billion yuan, an increase of 6.89% over the previous period; the overall new contract amount of the company signed in 24Q2 was about 15.874 billion yuan, -16% year over month, -25% month over month, of which the amount of new domestic contracts was about 6.704 billion yuan, +18% compared to the previous year, -3% month-on-month, and the amount of new contracts signed abroad was about 9.17 billion yuan, -30% year over month, and -36% month over month. We believe that the year-on-year growth rate of new orders signed by the company in the first half of the year was negative or mainly due to last year's high base. The amount of new orders signed by 23H1 was about 40.599 billion yuan, +68% year over year. Under the higher base, 24H1 only decreased 9% year on year. Overseas orders maintained a high growth rate, while domestic engineering services and high-end equipment manufacturing were the main drag factors, mainly due to the profit pressure on the domestic cement industry in the first half of the year.

I am optimistic about the performance elasticity brought about by Sinoma Cement going overseas. After the company increased its capital in December '23, Sinoma Cement held 40% of Sinoma Cement's shares. As an international business platform for China Building Materials basic building materials, Sinoma Cement currently owns 3 overseas production and operation projects in Zambia, Mongolia and Nigeria. We believe that after increasing capital and becoming a shareholder of Sinoma Cement, Sinoma Cement is expected to rely on the customer advantages accumulated by Sinoma International to accelerate the expansion of overseas markets. In July '24, the company announced that Sinoma Cement plans to establish a new SPV company in the UAE to acquire 100% of the shares of Tunisian CJO and its GJO company. The target company has stable operations, is geographically close to the port, and has excellent location conditions. It is a mature integrated cement enterprise in the regional market. After the acquisition, it is conducive to promoting the international layout of Sinoma cement business. We believe that Sinoma Cement's accelerated overseas layout is conducive to forming effective collaboration with the company's cement engineering and equipment business. According to the announcement, Sinoma Cement's development process involves technology, equipment, engineering, operation and maintenance services, giving priority to using Sinoma International to provide services under the same conditions. Furthermore, the company is also expected to enjoy Sinoma Cement's investment benefits in terms of share ratio.

Investment advice: We believe that the company has obvious advantages as a leader in cement engineering in the traditional business. After increasing the capital of Sinoma Cement, it is expected to accelerate the implementation of Sinoma Cement's international business, which is expected to bring business collaboration and investment benefits to the company. Considering that domestic cement profits continue to weigh on the company's equipment business this year, we slightly lowered the company's profit forecast. The company's net profit forecast for 24-26 is estimated to be 32.82, 37.14, and 4.268 billion yuan, respectively. The PE corresponding to the current price is 7.69, 6.79, and 5.91 times, respectively, maintaining the “buy” rating.

Risk warning: “Belt and Road” related events or policies fall short of expectations, causing overseas business expansion to fall short of expectations; overseas business risks or large exchange rate fluctuations: business transformation falls short of expectations.