1H24 Revenue and net profit meet market expectations
The company announced 1H24 results: operating income of 2.938 billion yuan, -3.7% year-on-year; net profit to mother of 0.192 billion yuan, or -22.7% year-on-year, all in line with market expectations. Earlier performance reports were disclosed. 2Q24 revenue was 1.651 billion yuan, -5.6% YoY; net profit to mother was 0.186 billion yuan, +44.6% YoY.
Development trends
1H24 segment: Digital cost, digital construction, digital design, and 1H24 revenue from overseas business were 2.459 billion yuan, 0.288 billion yuan, 35.49 million yuan, and 106 million yuan, respectively, +4.2%/-37.5%/-22.0%/+11.3%, respectively. 1) Digital costs: The overall revenue growth of digital costs is mainly due to the increase in cloud contract carry-over and the growth of products such as contract clearance. 1H24 cloud revenue was 1.877 billion yuan, -0.4% year over year; new cloud contract was 1.547 billion yuan, -1.2% year over year; traditional cost revenue was 0.582 billion yuan, +22.8% year over year. We believe that public resource exchange centers and contract clearance products brought revenue contributions to traditional cost business. 2) Digital construction: Increased management of business profitability and cash flow, improved revenue structure, and increased share of materials, labor, and intelligent hardware. 3) Digital design: The promotion of Hongye software slowed in the first half of the year, focusing on combining application scenarios to create a benchmark case for digital product integration, paving the way for subsequent market share.
4) Overseas business: The energy consumption simulation software company acquired by the subsidiary MagiCAD Group Oy was included in the scope of the merger, and the internationalization of digital costs and digital construction progressed smoothly in key markets.
Changes in revenue structure and cost control have led to an improvement in gross profit; cloud contract carry-over has increased, and contract liabilities have declined slightly compared to the same period last year. The gross profit margin of 1H24 was 85.9%, +1.1 ppt year over year, mainly due to cost control and the decline in the share of low-margin construction businesses. 1H24 digital cost/digital construction gross margin was +0.1pp/ -23.02ppt, respectively; the pressure on gross margin of the construction business was mainly due to external demand affecting revenue decline, and some real-time delivery costs were more rigid; the company strictly controlled construction business costs, and sales channel expenses decreased by about 30%. The contract debt at the end of 1H24 was 2.35 billion yuan, down 5.7% from the previous year. We believe that the newly signed cloud contracts were basically flat. As the share of three-year contracts decreased, the carry-over ratio of cloud contracts increased.
The effect of fee control was evident in 2Q24. Credit impairment losses increased. 1H24 was -79.77 million yuan, and 1H23 was -35.8 million yuan, mainly due to extended accounts receivable periods and individual accruals of historical long-term receivables. In 1H24, sales/management/R&D expenses were -14/ +12%/-5%, respectively. The increase in management expenses was due to the impact of one-time compensation payments. 1H24 “termination benefits” increased by 0.18 billion yuan. After exclusion, management expenses decreased by 16.3% compared to the same period last year. In 2Q24, the company's net profit to mother was +44.6% year-on-year. The cost control effect was obvious and provided some support for the second half of the year's results.
Profit forecasting and valuation
As credit impairment losses grew more than expected, we lowered 2024/25 net profit by 15.4%/17.1% to 0.478/0.743 billion yuan. The current stock price corresponds to the 2024/25 price-earnings ratio of 32.8/21.1. Considering that the company is a leading enterprise in construction informatization and has strong market competitiveness, we have lowered our target price by 28.8% to 12.10 yuan, corresponding to 41.8/26.9 times the 2024/25 price-earnings ratio, and there is 27.4% room to rise compared to the current stock price.
risks
The impact of downstream demand exceeded expectations; the risk of credit impairment in accounts receivable; and the repair of new orders fell short of expectations.