The performance growth rate was in line with expectations, and overseas revenue performance was impressive. 2024H1 achieved revenue of 20.9 billion yuan, an increase of 1.7%; realized net profit to mother of 1.4 billion yuan, an increase of 2.3%, and a 6% increase after deducting non-performance. The growth rate was in line with expectations. By quarter: Q1/Q2 achieved revenue of 10.3/10.6 billion yuan, an increase of 2.7%/0.7%, respectively; realized net profit to mother of 0.64/0.76 billion yuan, an increase of 3.1%/1.6%. By business: Engineering/equipment/operation and maintenance achieved revenue of 12.1/2.9/5.7 billion yuan respectively, an increase of 5%/-23%/22%. The revenue of the equipment sector declined a lot. It is expected that the first half of the year was mainly affected by weak domestic demand for cement, and owners' willingness to spend capital is low. Looking at the subregion: 2024H1 achieved revenue of 11.4/9.4 billion yuan domestic/overseas respectively, with impressive overseas revenue growth rates. Subsequent benefits from the acceleration of industrialization and urbanization in emerging countries. Demand for cement construction is expected to maintain the boom, driving steady growth in engineering orders, combined with an increase in the market share of operation and maintenance and the acceleration of equipment going overseas, and overseas revenue is expected to continue to grow rapidly.

Overseas profit growth has driven up gross margin, and operating cash flow has improved dramatically. 2024H1's comprehensive gross profit margin was 19.4%, up 1 pct year on year. Among them, domestic/overseas gross margin was -1.5/+3.7 pct year on year, and overseas gross margin continued to improve, which is expected to be mainly driven by an increase in operation and maintenance profit levels (H1 engineering/equipment/operation and maintenance gross margin +0.6/-0.5/+3.2 pct year on year, respectively). The cost ratio for the H1 period was 10.5%, up 0.9 pct year on year. Among them, the sales/management/R&D/finance ratio was -0.07/+0.6/-0.32/+0.7pct, respectively, and the financial expense ratio increased significantly. It is expected to result mainly from the depreciation of the Egyptian pound in March (0.22 billion yuan in the current period, 0.055 billion in the same period last year); the cost rate for the Q2 period was 9.76%, which was basically the same as the previous year. The share of H1 minority shareholders' profit and loss decreased by 1.2pct year on year. Net profit margin to mother was 6.7%, up 0.04pct year over year.

H1's net operating cash flow inflow was 0.89 billion, an increase of 1.8 billion over the same period last year. Cash flow improved markedly, mainly due to the company's enhanced contract settlement, which improved project repayment.

Operation and maintenance orders increased by 41%, and the profit contribution ratio continued to increase. 2024H1's operation and maintenance business signed a new order of 8.9 billion yuan, a year-on-year increase of 41%; achieved revenue/gross profit of 5.7/1.2 billion, an increase of 22%/43%, accounting for 27%/31%, an increase of 5/8 pct over the same period last year, further increasing the profit contribution ratio. Looking ahead, 1) Mine operation and maintenance: H1 signed a new order of 5.5 billion yuan, an increase of 47% (same increase of 62% in Q2), and the growth rate continued to be impressive; completed 0.306 billion tons of ore, an increase of 9%; achieved revenue of 3.6 billion yuan, an increase of 28%, and the cement supply market share further increased. Currently, mine safety supervision and greening requirements are becoming stricter, and the competitive advantage of large professional operators and maintenance companies continues to be highlighted. The company's market share is expected to increase at an accelerated pace. At the same time, it is expected that overseas markets will gradually be developed (overseas lines account for only 2% at the end of H1), and there is plenty of room for growth. 2) Cement operation and maintenance: 62 cement production lines are in hand, with an annual production capacity of over 0.1 billion tons, with a market share of about 21%. Relying on EPC's leading advantages, it is expected to further develop markets in the Middle East, Africa, South Asia, etc. Compared with the main engineering business, operation and maintenance business demand is stable and cash flow is excellent. In the future, as the scale of the business continues to expand and the share of profit increases, the company's business model is expected to be significantly optimized, driving the overall valuation to expand further.

Investment advice: We expect the company's net profit to be 3.4/3.9/4.4 billion yuan in 2024-2026, up 15.5%/15.1%/12.4% year-on-year, EPS 1.27/1.47/1.65 yuan respectively, and the current stock price corresponding to PE is 7.5/6.5/5.8 times, respectively, maintaining a “buy” rating.

Risk warning: risk of exchange losses, risk of overseas business operations, failure to meet expectations in operation and maintenance/equipment development, etc.