Revenue performance in the first half of the year was under pressure, and attention was paid to the catalytic effects of the low-altitude economy

The company released its 2016 semi-annual report. 24H1 achieved operating income of 1.661 billion yuan, -25.82% YoY, and realized net profit to mother of 0.154 billion yuan, or -41.28% YoY. Looking at the single quarter, the company's revenue and net profit attributable to mother in the 24Q2 single quarter were 0.871 and 0.061 billion yuan respectively, which were -36.27% and -63.47% year-on-year respectively. The results were significantly pressured by adverse factors such as downward pressure on infrastructure investment and increased market competition. Looking back, we believe that the company is deeply involved in diversified development of its main business and continues to expand and deepen in business directions such as digitalization and low-carbon environmental protection. At the same time, the company has undertaken several domestic civil aviation airport renovation and expansion projects. It has a first-mover advantage in low-altitude economy business, and is expected to benefit from the catalytic market in the low-altitude economy.

The gross margin of the survey and design business improved. Looking at the rapid growth sub-business of the subsidiary Dinoni, 24H1 Company achieved revenue of 2.3, 0.82, 0.2, 0.08 billion yuan in revenue respectively, -18.1%, -33.9%, -17.1%, and -32.2% year-on-year, respectively. The gross margins were 39.0%, 41.6%, 27.3%, and 18.6%, respectively. All businesses are under pressure to grow, but the gross margin of the main survey and design business has improved to a certain extent. Among the emerging businesses, digital intelligence and low-carbon environmental protection businesses achieved revenue of 0.12 and 0.18 billion yuan respectively, or -9.0% and -5.4% year-on-year respectively. Gross margins were 24.3% and 37.8%, respectively, -20.9 and +17.7pct year-on-year, respectively. Furthermore, the company continued to develop AI, and the subsidiary Jiangsu Dinoni R&D software and platform service contracts increased by more than 60% year over year, and revenue increased by nearly 96% year over year. In terms of the low-altitude economy, the company relied on an industry think tank (Beijing Civil Aviation Institute) +planning and design industry planning (company headquarters) +industry application (China aviation) to form a low-altitude economy business pattern from industry planning and standard policy research, to general aviation and supporting facilities design consulting, to integrated management and control platform construction and implementation in the drone industry. 24H1 undertook and successfully constructed and delivered the Taicang civil drone test flight base project, and was awarded a license by the East China Regional Administration of Civil Aviation in April 2024.

Depreciation has washed back some of the profits, and there is still room for improvement in cost control and cash flow. 24H1's comprehensive gross margin was 36.4%, -0.4 pct year on year, and the period expense ratio was 21.4%, +3.0 pct year over year. Among them, the sales/management/R&D/finance expenses ratio were 6.4%, 9.3%, and -0.3%, respectively, +1.5, +0.5, +1.2, and -0.2 pct year over year, respectively. Due to the decline in revenue, expenses were not effectively diluted. The total loss on 24H1 assets and credit impairment was 0.063 billion yuan, a year-on-year decrease of 0.031 billion yuan. Under the combined influence, the net interest rate was -3.0 pct to 9.1% year over year. 24H1's net CFO was -0.635 billion yuan, -0.376 billion yuan year-on-year. The pay-to-cash ratio was +12.53pct YoY to 115.27%, and the pay-to-cash ratio was +25.26pct YoY to 96.19%.

Deepen the diversified development of the main business and maintain a “buy” rating

Considering the poor industry sentiment in the first half of the year and the company's performance under heavy pressure, we lowered our 24-26 net profit forecast to 0.5, 0.54, and 0.6 billion yuan (previous values were 0.75, 0.81, 0.86 billion yuan), and -28.8%, +9.4% year over year, respectively. In the medium to long term, the company continued to promote business structure transformation, and continued to make efforts in new business areas such as construction+AI and low-altitude economy to maintain a “buy” rating.

Risk warning: Digital transformation falls short of expectations, order carry-over speed falls short of expectations, market development falls short of expectations, project gross margin falls short of expectations, and labor efficiency improvements fall short of expectations.