The Q2 performance declined due to pressure on the infrastructure business and the increase in financial rates. 2024H1 achieved revenue of 91 billion yuan, a decrease of 0.3%; achieved net profit of 2.84 billion yuan, a decrease of 3.6%, and an increase of 3.5% after deducting non-performance. The growth rate was in line with expectations. By quarter: Q1/Q2 achieved revenue of 45.2/45.9 billion, or +5.5%/-6% year over year; realized net profit of 1.22/1.62 billion, +9.5%/-12% year over year. Q2 results are expected to decline, mainly due to: 1) infrastructure projects were affected by financial constraints and execution slowed; 2) increased exchange losses, leading to a 1 pct increase in financial rates in a single quarter. By business: The chemical engineering/infrastructure/environmental treatment/new industrial materials/modern service industries achieved revenue of 739/101/1.1/4.4/0.7 billion yuan, compared to +4%/-20%/-22%/+7%/-53% year-on-year. Infrastructure and environmental engineering declined a lot, and the main chemical industry maintained steady growth. Looking at the subregion: 2024H1 achieved revenue of 69.7/20.7 billion yuan domestic/overseas respectively, -3%/+10% over the same period last year, and overseas revenue continued to grow at a relatively rapid rate.

Industrial profits improved markedly, and financial rates rose due to increased exchange losses. The comprehensive gross profit margin of 2024H1 company was 9.82%, up 1.06 pct year on year. Among them, the gross margin of the chemical/industrial sector increased 0.8/5.8 pct year on year, the gross margin of the main construction industry increased steadily, and the profitability of the industrial sector improved markedly. The cost rate for the H1 period was 5.03%, up 0.9 pct year on year (1.6 pct increase in Q2). Among them, sales/management/R&D/finance expenses rates were -0.01/+0.4/-0.05/+0.6 pct year on year (Q2 single quarter +0.02/+0.5/+0.15/+1pct, respectively), and the financial rate increased a lot, mainly due to exchange rate fluctuations. The share of H1 minority shareholders' profit and loss increased 1.1 pct year over year. Net profit margin to mother was 3.1%, down 0.1 pct year over year. H1's net operating cash flow outflow was 4.6 billion, an increase of 4.8 billion over the previous year, which is expected to be mainly due to delays in repayment of infrastructure projects.

New orders have maintained steady growth, and overseas orders are booming. 2024H1 signed a new contract amount of 203.6 billion yuan, an increase of 10%. By business, the new contract amount for engineering contracting was 194.4 billion, an increase of 11%. Of these, chemical engineering/infrastructure/environmental management contracts were newly signed, an increase of 9%/10%/47%. Major chemical industry orders continued to increase steadily, and key domestic chemical construction projects such as Wanhua Chemical, Zhongsha Gulei, and North China Huajin were gradually implemented, with outstanding leading advantages. Survey and design/industrial/modern services/other businesses signed new contracts worth 21/4.2/0.6/2.25 billion, respectively, -20%/-1.6%/-69%/+238% compared with the same period last year. Looking at regions: In the first half of the year, 162.2/41.3 billion new domestic and overseas orders were signed, respectively, -3%/+133% compared to the same period last year. From January to July, the amount of new contracts signed by the company increased by 10%. Domestic/overseas contracts increased by -5%/+154%, respectively. Overseas orders continued to increase.

Investment advice: We expect the company's net profit to be 5.7/6.3/7.2 billion yuan in 2024-2026, an increase of 4.2%/11.5%/13.8%, EPS of 0.93/1.03/1.17 yuan respectively. The current stock price corresponds to PE 7.4/6.6/5.8 times, respectively, maintaining a “buy” rating.

Risk warning: Overseas project implementation progress falls short of expectations, exchange risk, industrial transformation falls short of expectations, etc.