Revenue has remained stable, and mid-term dividends have improved the cost effectiveness of investment

24H1 achieved revenue of 28.034 billion, +1.69% year over year, 0.786 billion and 0.679 billion with non-net profit, +0.78% and -6.06% year over year; Q2 achieved revenue of 13.909 billion, -1.78% year over year, and 0.341 billion and 0.252 billion yuan of net profit to mother and 0.252 billion, respectively. Among them, non-recurring profit and loss was 0.107 billion yuan, an increase of 0.056 billion yuan over the previous year, mainly asset disposal income of 0.083 billion yuan and government subsidies of 0.034 billion yuan. The year-on-year decline in net profit to mother was mainly due to a sharp decrease in investment income. The company's gross margin still increased year on year, and the expense ratio declined. The company plans to pay a cash dividend of 0.314 billion in the first half of the year, with a cash dividend ratio of 40%. The high dividend highlights the investment value. We expect the company to achieve net profit of 3.24, 3.59, and 3.99 billion in 24-26. The approval will give the company 9 times PE in 24 years, and the corresponding target price is 9.27 yuan, maintaining the “buy” rating.

The gross margin of the construction business improved year-on-year. The Shanghai region achieved relatively rapid growth by business. The construction industry, design services, operation business, and digital information business achieved revenue of 244.27, 0.716, 1.197, and 0.205 billion, respectively, +2.63%, +4.01%, -5.18%, and +26.77%, respectively.

The gross margins were 12.17%, 26.41%, 15.1%, and 9.48%, respectively, +4.82pct, +4.82pct compared to +4.1pct, -0.31pct, +3.05pct. Looking at the subregion, the revenue of the Shanghai region was 20.115 billion, accounting for 72%, +12.55% compared to the same period, and gross margin was 16.3%, which is significantly higher than the company's overall gross profit margin. 24H1's comprehensive gross margin was 14.9%, +3.22pct year on year, and the Q2 quarterly gross margin was 17.37%, +5.9pct year on year. The improvement in gross margin of the construction business led to an increase in overall gross margin.

New orders are growing steadily, and the order structure is gradually being optimized

The company signed new orders of 46.125 billion yuan in the first half of the year, +9.08% year-on-year, and 23.47 billion yuan in Q2, +11.0% year-on-year. Among them, the amount of new municipal and energy contracts was 12.2/7.3 billion yuan, +38.1%/+53.9%, respectively, and 5.8 billion yuan per year for housing construction projects, -28.4%. The order structure continued to be optimized, 0.231 billion new digital business was signed, and 0.215 billion new contracts were signed in a single quarter. The digital business is progressing steadily, and the company has accumulated more infrastructure operation data, which is expected to benefit more from the rapid development of vehicle-road collaboration and driverless driving. New orders were 19.3/16.9 billion yuan in and outside of Shanghai, which was -11.4%/+32.2% year-on-year, respectively. In the first half of the year, the company successively participated in fixed growth with listed companies such as Lujiazui and CCCC Design. On the one hand, it strengthened upstream and downstream cooperation, and on the other hand, it could raise the level of industrial cooperation between the company and investors in emerging business formats such as smart cities, low-altitude economy, and vehicle-road collaboration.

Expense rates declined year-on-year, and the decline in investment returns dragged down profit growth

The 24H1 company's expense ratio for the period was 10.44%, -0.12pct year-on-year, and the sales, management, R&D, and financial expense ratios changed +0.01, -0.26, +0.41, and -0.28 pct year-on-year, respectively. Asset and credit losses were 0.173 billion, a year-on-year decrease of 0.156 billion, and net investment income decreased 1.22 billion year-on-year. Taken together, 24H1's net interest rate was 2.8%, -0.51 pct year on year, and the net interest rate for single Q2 fell 0.46 pct year on year to 2.78%.

The net CFO of 24H1 was -3.764 billion, with a year-on-year increase of 3.245 billion yuan. The current payout ratios were 98.86% and 111.16%, respectively, -32.86 pct and -22.81 pct.

Risk warning: Infrastructure investment is weaker than expected, risk of impairment, and project progress falls short of expectations.