Q2 The decline in revenue and performance widened, and marginal improvement is expected in the second half of the year. 2024H1 achieved total revenue of 544.5 billion yuan, a decrease of 7.8%; realized net profit to mother of 14.28 billion yuan, a decrease of 12.1%; and a decrease of 14.0% after deducting non-performance. The decline in performance is mainly due to the slow issuance of localized bonds and special bonds since this year, putting pressure on infrastructure funding, which has limited the formation of physical workload. On a quarterly basis, Q1/Q2 achieved revenue of 265.6/278.9 billion yuan, a year-on-year decrease of 2.6%/12.3%; net profit to mother of 7.5/6.8 billion yuan, a decrease of 5.0%/18.7%, and an increase in Q2 single-quarter decline, mainly due to increased revenue decline, increase in period expense ratio (+0.3 pct year-on-quarter), and increase in impairment losses (single-quarter loss +0.3 billion year-on-year). By region, domestic/overseas revenue of 510.4/34.1 billion yuan was achieved respectively, -8.6%/+6.1% year-on-year. By business, infrastructure/ design consulting/ equipment manufacturing/ real estate development/ other businesses achieved revenue of 4730/90/12/14.5/36 billion yuan, respectively, -7%/-4%/-10%/-10%/-10%/-10%. Looking ahead, along with the accelerated issuance of special bonds and special treasury bonds during the year, the overall funding of infrastructure is expected to improve, driving up the implementation of physical workload. As the main executor of major projects, the company is expected to benefit, and the subsequent performance growth rate is expected to achieve marginal improvement at a low base.

The profitability of the main infrastructure business has been optimized, and operating cash flow is under pressure. 2024H1's gross profit margin was 9.04%, down 0.01pct year on year. Among them, the gross margin of infrastructure/design consulting/equipment manufacturing/real estate development/other businesses was +0.20/-1.58/-1.48/-2.42/-0.14pct year on year (gross margin of resource utilization -5.22pct year on year), and the gross margin of the main infrastructure industry increased. The cost rate for the period was 4.80%, up 0.15 pct year on year. Among them, the sales/management/R&D/finance cost ratio changed by +0.02/+0.13/ -0.05/+0.05 pct year on year, respectively. The increase in financial expenses was mainly due to an increase in external loans due to delays in payment by owners of some engineering projects, which boosted the increase in interest expenses. Asset (including credit) impairment losses were accrued by more than 0.1 billion. Minority shareholders' share of profit and loss decreased by 2.2 pct. Net profit margin to mother was 2.6%, down 0.13pct year over year. The company's net cash outflow from operating activities in the first half of the year was 69.3 billion yuan, an increase of 39.4 billion yuan over the same period last year. It is estimated that payments were delayed mainly due to tight capital from owners; the net cash flow from investment was 22.1 billion, narrower than the same period last year by 12.4 billion, mainly due to increased investment recovery and reduced investment in long-term assets.

Q2 The overall order scale declined, and traditional sectors such as housing construction and highways were under pressure, and emerging businesses grew rapidly. 2024H1 signed a new contract amount of 1078.5 billion yuan, down 15%; Q2 signed 456.9 billion yuan in a single quarter, a decrease of 25%, mainly due to the incremental contraction of traditional infrastructure and housing construction projects. By business, the amount of new contracts signed for 24H1 project construction was 780.2 billion yuan, a decrease of 16%, of which 1345/581/709/27/440.9/48.9 billion yuan was signed for railway/ highway/ municipal rail/ housing construction/ other businesses respectively, +5%/-11%/-31%/-62%/-18%/+94%; characteristic real estate/asset operations declined significantly, with an increase of 32%, including water conservancy, hydropower/cleaning Energy increased 58%/48%, respectively. Looking at the subregions, the domestic/overseas business signed a new contract of 996.1/82.4 billion yuan respectively, a decrease of 16%/2% over the same period.

The rise in copper prices has led to performance elasticity, and the value of the resource sector is expected to be revalued. The company's reserves of copper, cobalt and molybdenum are in a leading position in the domestic industry, and the mine's own production capacity of copper and molybdenum already ranks among the highest in the country. China Railway Resources, a subsidiary of 2024H1, achieved net profit of 2.02 billion yuan to mother, accounting for 14.2% of total net profit to mother. Since the beginning of 2024 (as of 2024/8/29), the average price of LME copper has risen 8% compared to 2023. If copper prices continue to rise, the resource sector's profit contribution is expected to increase. Furthermore, if the company applies to the State Assets Administration Commission for mineral resources and is approved as the main business to be cultivated, it is expected that in the future, it will rely on global business channel resources to acquire new mines to accelerate development, further opening up space for value revaluation.

Investment advice: Considering that the current industry situation is under pressure, we adjusted the forecast value of the company's net profit to mother for 2024-2026 to 31.1/32.3/33.6 billion yuan, -7%/+4%, EPS was 1.26/1.31/1.36 yuan, respectively, the current stock price corresponding PE was 4.6/4.4/4.2 times, and the latest PB-LF was 0.50 times, maintaining the “buy” rating.

Risk warning: Infrastructure investment falls short of expectations, risk of impairment of accounts receivable, risk of commodity price fluctuations, etc.