Revenue and profit increased steadily in the first half of the year, and performance flexibility is worth looking forward to

The company released its 2016 semi-annual report. 24H1 achieved operating income of 54.627 billion yuan, +0.1% year over year, realized net profit of 0.955 billion yuan, +6.88% year on year, and net profit of non-return to mother of 1.033 billion yuan, +20.59% year over year. Looking at a single quarter, 24Q2's revenue and net profit to mother were 25.592 and 0.398 billion yuan respectively, -0.21% and +3.3% year-on-year respectively. The construction of the nuclear power project progressed smoothly, and the scale of revenue and profit increased steadily. At the industry level, the boom in nuclear power engineering is still accelerating. In 22-23, the number of nuclear power units approved in China was 10. On August 19, the National Assembly reviewed and approved 5 nuclear power projects with a total of 11 nuclear power units, reaching the peak of historical approval since 2014. We believe that with the acceleration of nuclear power approval, the company is expected to continue to benefit, and orders and revenue are expected to maintain rapid growth. Furthermore, the company is promoting structural transformation of industrial and civil engineering businesses, and performance flexibility is worth looking forward to.

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

By business, 24H1's nuclear power engineering, industrial and civil engineering construction achieved revenue of 15.083 and 35.701 billion yuan, respectively. Based on the financial data disclosed in the reporting segment, the gross margins of the above two business segments were 13.0% and 7.1%, respectively, +1.1 and -0.7 pct. The revenue of the nuclear power engineering business grew rapidly, and gross margin improved, further verifying the upward logic of the industry's boom acceleration. Looking at the order level, 24H1 signed a new order of 76.637 billion yuan, +17.07% over the same period last year. The number of orders on hand is abundant or provides good support for revenue growth. In addition, the company continues to promote the structural transformation of industrial and civil engineering businesses, and the amount of new contracts signed in the 24H1 new energy category represented by photovoltaics increased dramatically over the same period last year.

Reduced impairment losses, improved profitability and cash flow

24H1's gross margin was 9.8%, +0.19pct year on year, and the cost ratio for the period was 6.2%, +0.02pct year on year. Among them, sales, management, R&D, and financial expenses rates were -0.01, -0.26, +0.45, and -0.15 pct, respectively. The company increased R&D investment in key construction fields such as nuclear power, leading to an increase in R&D expenses. 24H1's asset and credit impairment losses totaled 0.28 billion yuan, a year-on-year decrease of 0.126 billion yuan. The net interest rate under comprehensive influence was 2.43%, +0.14pct year-on-year. In terms of cash flow, 24H1's net CFO was -12.901 billion yuan, with a year-on-year decrease of 0.186 billion yuan. The revenue ratio and payout ratio were +3.59pct and +3.77pct to 66.53% and 83.09%, respectively.

It is expected that nuclear power projects will continue to expand and maintain the “gain” rating

We believe that the nuclear power engineering industry is highly concentrated. China Nuclear Construction's share in the nuclear island construction process is expected to fully benefit from industry expansion. The subsequent nuclear power engineering business is expected to gradually contribute to performance and revenue elasticity. The company's net profit for 24-26 is estimated to be 2.4, 2.8, and 3.2 billion yuan respectively, +18%, +15%, and +16%, respectively, over the previous year, maintaining a “gain” rating.

Risk warning: Nuclear power plant approval and construction progress falls short of expectations, infrastructure real estate investment growth falls short of expectations, and risk of impairment of accounts receivable.