Incidents:
On August 24, 2024, the company released its 2024 semi-annual report. In the first half of the year, the company achieved operating income of 20.895 billion yuan, a year-on-year increase of 1.68%, and realized a net profit of 1.399 billion yuan to mother, an increase of 2.28% over the previous year.
Opinions:
High-quality transformation of the business structure: Firmly going out to find new volume, and operation and maintenance services are gradually entering a period of harvest. In the first half of 2024, domestic cement market demand was weak, prices were low, cement companies had insufficient momentum to build new production lines, and overseas business and new orders contributed mainly to the increase.
The revenue of the main engineering services business was 12.099 billion yuan, up 4.82%; the gross profit margin was 15.54%, up 0.62 pct; new orders for engineering services were 24.126 billion yuan, a decrease of 18%, with an increase of 4% overseas and a decrease of 58% domestically. The equipment manufacturing sector is highly correlated with the engineering services sector. The first half of the year was also under pressure, achieving revenue of 2.916 billion yuan, a decrease of 23.07%, gross profit margin of 23.25%, a reduction of 0.51 pct, new orders of 3.344 billion yuan, and a 15% reduction. Among them, overseas increased 58%, domestic also decreased 33%, and the “two foreign” strategies in the equipment sector progressed smoothly.
Operation and maintenance services performed well, achieving revenue of 5.673 billion yuan, an increase of 22.22%, a gross profit margin of 21.93%, an increase of 3.18%, and new orders of 8.897 billion yuan, an increase of 41%. Among them, cement operation and maintenance mainly came from overseas, and mine operation and maintenance continued to expand into the non-cement industry.
Improving the quality and efficiency of operations: Focus on profit levels and cash flow, and cash flow improved significantly during the reporting period. Against the backdrop of industry pressure, the company insisted on steady progress, focusing on profit and cash flow levels, and the main indicators improved markedly. During the reporting period, the company's net operating cash flow was 0.885 billion yuan, which was significantly corrected compared to the same period in 2023 (-0.94 billion yuan), mainly due to strengthening contract settlement and supervising project repayment; net financing cash flow of -1.212 billion yuan, and a significant reduction in loans; at the same time, implementing the Group's “going global” strategy and promoting collaboration with brother companies to strengthen high-quality long-term investments. Investing in Sinoma Cement during the reporting period, the net investment cash flow was -0.967 billion yuan.
Profit forecast and investment rating: Affected by the downturn in the domestic cement industry, the company's main engineering business and equipment manufacturing business were under pressure in the first half of the year. Overseas business and new orders provided major increases. At the same time, operation and maintenance services entered a period of steady growth after a few years due to annualized revenue confirmation, and it is expected to maintain a high growth rate. We expect the company to achieve net profit of 3.263 billion yuan, 3.805 billion yuan, and 4.452 billion yuan in 2024-2026, corresponding PE 7.7 times, 6.6 times, and 5.7 times, respectively. China Chemical, China Steel International, and China Industrial International, which are similar to the company's main business, were selected as comparable companies, and maintained a “buy” rating considering the company's high performance growth flexibility and low valuation.
Risk warning: cement industry prosperity continues to decline; macroeconomic recovery falls short of expectations; risk of geopolitical fluctuations; fluctuations in overseas cement demand; risk of data citation.