Results continued to be under pressure, and there was a month-on-quarter improvement in Q2

The company released its 2014 semi-annual report. 24H1 achieved operating income of 7.654 billion yuan, -0.9% year on year, realized net profit of 0.273 billion yuan, or -30.17% year on year, net profit of 0.246 billion yuan after deducting non-return to mother net profit of 0.246 billion yuan, or -33.03% year on year. Looking at the single quarter, 24Q2's revenue and net profit to mother were 4.24 and 0.176 billion yuan respectively, +5.93% and -16.68% year-on-year respectively, which was a significant improvement over the first quarter. Since 24, the company's order level has continued its 23-year growth trend. We believe that the company's subsequent overseas business expansion is expected to accelerate. At the same time, the company is actively developing business growth in the fields of joint ventures, patent licensing, BIPV, etc., and the business structure is expected to continue to be optimized.

New orders are growing steadily, and overseas business is expanding at an accelerated pace

By business, 24H1's steel structure, integration and EPC business achieved revenue of 6.78 and 0.72 billion yuan respectively, with gross margins of 12.4% and 10.2% respectively. In terms of orders, the company's goal is to sign new orders at least +10% year over year. As of 24H1, new orders have been signed at 12.24 billion yuan, or +9.4% year over year. Here's a breakdown:

1) In terms of traditional steel structure business, 24H1 signed a new professional subcontracting integrated business contract of 7.63 billion yuan, -7.6% compared with the same period last year. Among them, industrial construction projects were 5.3 billion yuan, -2.6% year on year, and public construction projects were 2.33 billion yuan, or -17.4% year over year. New EPC and assembly orders were 2.18 billion yuan, -1.5% year-on-year. 2) In terms of joint venture chain business, 24H1's industrial chain and strategic franchise signed a new order of 0.35 billion yuan, +82.7% over the same period last year, further demonstrating the company's brand value. 3) In terms of overseas business, the company used the opportunity of “borrowing a ship to go overseas” to provide services for domestic customers. 24H1 signed a new 1.88 billion yuan, +338.2% year over year, accounting for 15.4%, an increase of 11.6 pct over the previous year. Among them, industrial buildings and landmark buildings signed 0.87 and 1.01 billion yuan respectively, +195% and +652% year-on-year respectively. 4) In terms of BIPV, the 24H1 contract amount was 0.13 billion yuan, +300.2% over the same period last year, which nearly achieved 90% of the BIPV business volume for the whole of last year.

Profitability is under pressure, and cash flow continues to improve

24H1's gross margin was 12.8%, -1.31pct year on year, and the cost ratio for the period was 9.36%, +0.5pct year on year. Among them, sales/management/R&D/finance expense ratios were +0.14, +0.17, +0.13, and +0.05 pct year over year, respectively. The total asset and credit impairment losses of 24H1 company rushed back 0.021 billion yuan year on year, up 0.002 billion yuan year on year. The net interest rate under comprehensive influence was 3.61%, -1.47pct year on year. In terms of cash flow, 24H1's net CFO was 0.222 billion yuan, with a year-on-year increase of 0.156 billion yuan. The revenue ratio and payout ratio were -1.37 pct and -6.54 pct to 106.59% and 105.42%, respectively.

There is broad room for medium- to long-term growth, maintaining a “buy” rating

We believe that as a leading enterprise in the steel structure industry, the company has outstanding brand advantages and strong customer stickiness. In the 24H1 industrial construction business, old customers account for about 50% of the total bid amount, or support steady growth in performance, and there is still room for improvement in medium- to long-term market share. At the same time, overseas business is expanding at an accelerated pace, and emerging businesses continue to be empowered, which is expected to create a second growth curve. We expect the company's net profit to be 0.61, 0.66, and 0.73 billion yuan respectively in 24-26, +11%, +9%, and +10% year-on-year respectively, maintaining a “buy” rating.

Risk warning: Industry sentiment continues to decline, steel prices fluctuate greatly, ongoing orders fall short of expectations, and project repayments fall short of expectations.