24H1 revenue/net profit ratio -4.6%/-12.8% YoY, maintaining the A/H “buy” rating

In 24H1, revenue was 516.1 billion yuan, -4.6% year over year, and net profit attributable to mothers/net profit deducted from non-mother was 11.9/11.2 billion yuan, or -12.8%/-13.5% YoY. 24Q2 achieved net profit of 241.2/5.9 billion yuan, or -9.8%/-24.1% year over year. Net profit to mother was lower than our expectations (7.7 billion yuan), mainly due to a decline in revenue and an increase in interest-bearing liabilities, which led to a significant increase in financial expenses. Considering the slowdown in the growth rate of traditional infrastructure investment, we adjusted the company's net profit forecast for 2024-2026 to 24.1/23.1/22.4 billion yuan (previous value 27.4/28.7/29.7 billion yuan). Comparable to A Shares/H Shares, the company Wind agreed on an average of 5/3xPE in 24, approved 5/3xPE for A/H shares, adjusted the target price for A/H shares to HK$8.89/HK$5.84 (previous value: HK$10.09/HK$6.67), all maintaining a “buy” rating.

Comprehensive gross margin improved year-on-year, and overseas revenue grew steadily

24H1's overall gross profit margin was 9.12%, year-on-year +0.21pct, 24Q2 gross profit margin 10.6%, and the same as +0.6/+2.8pct. Among them, engineering contracting/material logistics/real estate/planning and design consulting/industrial manufacturing revenue was 4516/422/31.5/8/11.2 billion, -6.81%/+47.34%/-4.57%/-7.65%; gross profit margin 7.6%/9.2%/11.4%/42.4%/21.1%, +0.03/+1.1/-0.9/+1.7/-2.3pct; total profit contribution 341/38/3.6/3.4/2.3 billion billion yuan. By region, domestic and external revenue was 485.3/30.8 billion, -5.17%/+5.28% year-on-year, gross profit margin 9.30%/6.24%, and +0.24/0.07pct year-on-year.

Financial expenses significantly increased the cost rate during the upward period. The short-term pressure on cash flow was 4.8%, +0.41pct year on year. Among them, sales/management/R&D/finance expenses were 0.57%/1.98%/1.67%/0.57%, respectively, -0.04/+0.14/+0.28pct, financial expenses increased 85.1% year on year. The main interest-bearing debt increased by 66.9 billion yuan year on year to 399.5 billion yuan, resulting in an increase of 0.8 billion yuan year on year in interest expenses billion yuan. The company's 24H1 net profit margin was -0.22pct to 2.31% year-on-year. Among them, 24Q2 net profit margin was 2.44%, -0.46pct year over year, and +0.25pct month-on-month.

24H1 net cash flow from operating activities was 81.7 billion yuan, with a year-on-year increase of 101 billion yuan, payment/cash ratio of 96.1%/110.8%, and -3.77/+8.70pct year-on-year. 24H1 final company accounts receivable and notes/contract assets/inventory/accounts payable and notes/contract liabilities +61/+250/ -1.4/-21.9/-48.6 billion yuan year-on-year.

New orders for mining, water conservancy and water transportation are growing rapidly. With plenty of orders in hand, 24H1 signed a total of 1.1 new contracts, which is 36.67% of the annual plan, or 19.02% over the same period last year.

Among them, railway/highway/urban rail/housing construction/municipal and power engineering were newly signed at 785/723/449/426.3/105.6/53.8 billion yuan, -27%/-19%/-14%/-35%/-9% compared to the same period, and 69.8/54.6 billion yuan for mining/water conservancy and water transportation, or +414%/+40% compared to the same period last year. By region, 1028.1/72.4 billion yuan was newly signed domestic/overseas, -19.45%/-12.32% compared with the same period last year. By the end of 24H1, on-hand orders were 7.12 orders worth about 6.3 times the 23-year revenue.

Risk warning: The growth rate of infrastructure investment is slowing down, real estate recovery is lower than expected, and the increase in gross margin falls short of expectations.