Results for the first half of the year are under pressure, and attention is being paid to improving report quality

The company released its 2016 semi-annual report. 24H1 achieved total operating income of 516.14 billion yuan, -4.6% year over year, net profit to mother of 11.9 billion yuan, -12.8% year-on-year, and net profit of 11.15 billion yuan after deducting non-return to mother net profit of 11.15 billion yuan, or -13.5% year-on-year. Among them, 24Q2 achieved revenue of 241.19 billion yuan in a single quarter, -9.8% year-on-year, and realized net profit of 5.88 billion yuan, or -24.1% year-on-year. Revenue and profit for the first half of the year were under pressure. As of the close of trading on August 30, the company's PE and PB were at the historical levels of 18% and 3% in the past 5 years, respectively, and the dividend ratio (TTM) was 4.5%. It is recommended to pay attention to the effects of the company's subsequent cost reduction, efficiency, and quality improvement measures on reporting quality.

The real estate development business is growing rapidly, and the emerging business direction continues to gain momentum by business. 24H1 engineering contracting, planning and design consulting, industrial manufacturing, real estate development, material logistics and other businesses achieved revenue of 4516, 80, 11.2, 31.5, 42.2 billion yuan, respectively, -6.6%, -4.6%, -7.7%, +47.3%, and -6.8% year-on-year, respectively. The gross margins were 7.6%, 42.4%, 21.1%, 11.4%, and 9.2%, respectively. 2.33, -0.88, +1.1pct. As the number of projects delivered by affiliated units increased, real estate business revenue continued to grow rapidly. In addition, the gross margin of engineering contracting and planning and design consulting businesses also improved. At the order level, 24H1 signed a new contract amount of 1100.6 billion yuan, or -19.0% year-on-year. The amount of new contracts signed in the 24Q2 quarter was 549.9 billion yuan, -32.9% year-on-year. In the first half of the year, the company vigorously expanded emerging businesses such as urban renewal, water conservancy and water transportation, new energy, ecology and environmental protection, and accelerated the implementation of strategic emerging industry projects. 24H1 signed a new green environmental protection order of 93.3 billion yuan, +33.5% over the same period last year. Looking at the subregions, 24H1's domestic and overseas revenue was 485.3 billion yuan and 30.8 billion yuan, respectively, -5.2% and +5.3% year-on-year respectively. New orders were signed at 1028.1 and 72.5 billion yuan respectively, or -19.5% and -12.3% year-on-year respectively.

Gross margin improved slightly, and there is still room for optimization of cash flow

The gross margin of 24H1 company was 9.12%, +0.21pct year on year, and the cost ratio for the period was 4.8%, +0.41pct year on year. Among them, sales, management, R&D, and finance expenses were -0.04, +0.14, and +0.28pct, respectively. The absolute value of financial expenses was +85% year-on-year, mainly due to the increase in interest expenses. The total asset and credit impairment losses of 24H1 Company were 2.262 billion yuan, an increase of 0.311 billion yuan over the previous year. Under the combined influence, 24H1 net margin was 2.9%, -0.15pct year over year. In terms of cash flow, 24H1's net CFO was -81.676 billion yuan, -62.333 billion yuan year on year, revenue ratio -3.77pct to 96.11% year on year, and payout ratio +8.7pct to 110.82% yoy.

Undervalued central enterprises are blue chips and maintain a “buy” rating

Considering that the company's operations faced some pressure in the first half of the year and the pressure on performance was obvious, we slightly adjusted the company's net profit forecast for 24-26 to 27.3, 28.5, and 29.8 billion yuan (previous values were 28, 30.1, and 31.9 billion yuan) to maintain the “buy” rating.

Risk warning: The growth rate of infrastructure investment fell short of expectations, the carry-over of engineering orders fell short of expectations, the growth in overseas demand fell below expectations, real estate sentiment exceeded expectations, and the advantages of central enterprises weakened due to limited project expansion.