occurrences

On August 23, 2024, the company announced the 2024 interim results announcement.

Key points of investment

Revenue and profit both increased, and domestic and foreign contract volume growth diverged

2024H1 achieved revenue of 20.9 billion yuan, +1.7% year on year; gross profit of 1.4 billion yuan, +2.3% year on year; gross profit margin of 19.4%, +1.0 pct year on year; net profit margin 7.1%, the same year on year; by region, the company achieved revenue of 11.4 billion yuan and 9.4 billion yuan, respectively, -7.2% and +15.2%, accounting for 55% and 45% of total revenue respectively; gross margins were 16.3% and 22.6%, respectively- 1.5pct, +3.7pct 2024H1 signed a new contract amount of 37.1 billion yuan, or -9% year-on-year, of which domestic and overseas contract amounts were 13.6 billion yuan and 23.5 billion yuan respectively, compared to -28% and +9%, respectively.

The operation and maintenance business is growing strongly, and the revenue contribution continues to increase

By business, engineering technology services, high-end equipment manufacturing, and production and operation services achieved revenue of 12.1, 2.92, and 5.67 billion yuan respectively, accounting for +4.8%, -23.1%, and +22.2% year-on-year respectively, accounting for 57.9%, 14.0%, and 27.2%, respectively, changes of -0.3, -1.7, and +4.0pct from the end of 2023; gross margins were 15.5%, 23.3%, and 21.9%, respectively; the year-on-year contract amounts were different It was 24.1, 3.3, and 8.9 billion yuan, -18%, -15%, and +41%, respectively. The company's production and operation business performed well, with revenue, gross margin and new contract amounts all showing an upward trend. Specifically, in the production and operation business, 1) the amount of new mine operation and maintenance contracts was 5.53 billion yuan, an increase of 47% over the previous year; by the end of June, 348 mine operation and maintenance service projects had been implemented, an increase of 67 over the end of 23; completed mineral supply of 0.31 billion tons, +9% year-on-year; 2) The amount of new cement and other operation and maintenance contracts signed was 3.37 billion yuan, an increase of 32% over the previous year; There are 62 service production lines, an increase of 6 over the end of 23, providing an annual production capacity of more than 0.1 billion tons. We believe that as domestic safe mining and green mining policies become more strict, and the synergy between foreign and engineering businesses increases, there is huge room for the company's operation and maintenance business revenue to grow.

Increased exchange losses and improved operating cash flow

The 2024H1 company's cost rate for the period was 10.5%, +0.9 pct year on year. Among them, sales, management, R&D, and finance expenses rates were -0.1, +0.6, -0.3, and +0.7 pct, respectively. Among them, the increase in the financial expense ratio was mainly due to fluctuations in overseas exchange rates, which led to exchange losses of 0.22 billion yuan, an increase of 0.16 billion yuan over the previous year. 2024H1 strengthened contract settlement and achieved a net cash inflow of 0.89 billion yuan from operating activities, an increase of 1.83 billion yuan over the previous year, and a significant improvement in operating cash flow. We believe that the company's revenue structure is gradually changing. As the share of equipment and operation and maintenance business revenue increases, the company's repayment methods will continue to be optimized, which is expected to drive continuous improvement in cash flow.

Investment advice

The company relies on the strong China Building Materials Group, which has great potential for growth in cement engineering services in countries along the “Belt and Road”. We are optimistic about the room for growth in the company's equipment and operation and maintenance business with the main cement industry. At the same time, we are optimistic that the company will reach a three-legged business pattern at the end of the 14th Five-Year Plan to achieve high-quality growth. We forecast the company's net profit to be 3.3 billion yuan in 2024, corresponding to EPS of 1.25 yuan/share, maintaining a “buy” rating.

Risk warning

Competition in overseas markets intensifies; domestic demand for building materials and machinery has declined; risk of exchange rate fluctuations.