Emerging businesses continue to gain strength, and diversified transformation and upgrading are accelerating

The company released its 2014 semi-annual report. 24H1 achieved revenue of 543.285 billion yuan, or -7.84% year on year, and realized net profit of 14.278 billion yuan, or -12.08% year on year. Of these, Q2 achieved revenue of 278.274 billion yuan in a single quarter, -12.35% year over year, and achieved net profit of 6.797 billion yuan, or -18.71% year on year. Over the past 24 years, the company has focused on its main business and vigorously expanded its second business curve. The 24H1 emerging business signed a new contract amount of 166.33 billion yuan, +32.1% over the same period. The diversification, transformation and upgrading of the company's business has accelerated, and continued layout in the mineral resources sector, which is expected to contribute to additional performance growth.

Traditional main business is under pressure, and mineral resource development remains stable

By business, in terms of traditional main business, 24H1 infrastructure construction, design consulting, equipment manufacturing, and real estate development business achieved revenue of 4730.48, 8.965, 12.024, and 14.481 billion yuan, respectively, -6.76%, -4.11%, -9.68%, and -30.78% year-on-year. In infrastructure business, railways, highways, and municipalities achieved revenue of 133.331, 79.882, and 259.835 billion yuan, respectively, -2.26%, -9.82%, and - 7.97% At the order level, 24H1 signed a new contract amount of 1078.5 billion yuan, -15.3% year-on-year, of which the new contract amount signed domestically was 996.12 billion yuan, -16.2% year-on-year; the amount of new contracts signed overseas was 82.38 billion yuan, or -2.3% year-on-year. In terms of other business, 24H1 achieved revenue of 36.005 billion yuan, of which the resource utilization business achieved revenue of 4.048 billion yuan, +7.19% year over year. The development and sales of major mineral resources remained stable overall. Among them, the production of copper, cobalt, molybdenum, lead and zinc was 15.02, 0.28, 0.0077, 0.0046, 0.0107 million tons, respectively, +1.3%, +13.5%, -5.2%, -23.and -34.4% ; Silver metal production was 18 tons, -41.3% YoY. The net profit of China Railway Resources Group, a 24H1 subsidiary, was 2.265 billion yuan, or -17.65% year-on-year.

There is still room for improvement in profitability, expense ratio, and cash flow

24H1's gross margin was 8.8%, or -0.01pct. Among them, gross margins for infrastructure construction, design consulting, equipment manufacturing, real estate development, and other businesses were 7.90%, 26.24%, 18.34%, 12.57%, and 14.66%, respectively, +0.20, -1.58, -1.48, -2.42, and -0.14pct, year-on-year, respectively. The 24H1 company's expense ratio for the period was 4.81%, +0.15pct year on year. Among them, sales, management, R&D, and finance expenses were +0.02, +0.13, -0.05, and +0.05pct, respectively. The total asset and credit impairment losses of 24H1 company were 2.005 billion yuan, a year-on-year decrease of 0.104 billion yuan. Under the combined influence, 24H1 net margin was 2.88%, -0.21pct year over year. In terms of cash flow, the net CFO of 24H1 was -69.332 billion yuan, an increase of 39.365 billion yuan year-on-year. The pay-to-cash ratio was -13.55pct to 88.12%, and the pay-to-cash ratio was -6.59pct yoy to 98.02%.

Optimistic about the growth momentum of the second curve and maintain the “buy” rating

We are optimistic that the quality of the company's growth will steadily improve, and the mineral resources sector is also expected to contribute to performance elasticity. The company's net profit to mother for 24-26 is 35.4, 37.1, and 38.9 billion yuan, maintaining a “buy” rating.

Risk warning: Prices of mineral resources fluctuate greatly, order carry-over speed falls short of expectations, increased competition among central enterprises has led to declining profit margins, and infrastructure investment growth falls short of expectations.