Incident: 2024H1's revenue of 543.285 billion yuan decreased by 7.8%; net profit to mother of 14.278 billion yuan decreased by 12.1%; 2024Q2's revenue of 278.274 billion yuan decreased by 12.4%; net profit to mother of 6.8 billion yuan decreased by 18.7%.

The scale of the infrastructure business declined and gross margin increased slightly, and the real estate development business is still in the adjustment period. 2023H1 infrastructure construction, design consulting, equipment manufacturing, real estate development, and other businesses achieved revenue of 4730.5/89.6/12.02/14.48/36.01 billion yuan, a decrease of 6.8%/4.1%/9.7%/9.7%/30.8%/9.7%. Among them, the railway, highway and municipal businesses in the infrastructure business achieved revenue of 133.33/79.88/259.84 billion yuan, respectively, a decrease of 2.26%/9.82%/7.97%. In other businesses, the resource utilization business achieved revenue of 4.05 billion yuan and an increase of 7.2%; infrastructure construction, design consulting, equipment manufacturing, real estate development and other businesses achieved gross profit margins of 7.9%/26.2%/18.3%/12.6%/14.7%, with a year-on-year change of 0.2 pct/-1.6pct/-1.5pct/-2.4pct/-0.14pct. Among them, the increase in gross margin of the infrastructure business was further promoted. The gross profit margin of the equipment manufacturing business was further promoted. The decline was mainly due to increased market competition, and the decline in gross margin of the housing development business was mainly affected by the downturn in the real estate market.

Profitability was slightly under pressure, and operating cash flow continued to have a significant net outflow. The company's 2024H1 gross sales margin was 8.84%, down 0.01pct; the period expense ratio was 4.81% and 0.15pct. Among them, the company's sales/management and R&D/finance expense ratios were 0.53%/3.91%/0.35%, respectively, with a year-on-year change of 0.02pct/0.08pct/0.05pct. The increase in financial expenses was mainly due to the increase in the company's external borrowing; the asset and credit impairment loss ratio was 0.37%, up 0.01pct; 2024H1 Capital payments to owners of some of the company's engineering projects were delayed, and the company promptly paid supplier payments. The net cash flow from operating activities was 69.332 billion yuan, an increase of 39.365 billion yuan over the same period last year; the revenue ratio decreased by 88.12% and 13.55 pct; the payout ratio was 98.02%, down 6.59 pct; as of 2024H1, the company's accounts receivable and notes, advance accounts received+ contract liabilities were 2367.7/548.29/ 664.29/141.08 billion yuan, a change of 49.17%/20.89%/12.83%/3.07% from the beginning of the year.

Investment advice: We expect the company to achieve revenue of 1.15/1.13/1.17 trillion yuan in 2024-2026, net profit to mother 26.66/26.35/27.49 billion yuan, and PE 5.7/5.8/5.6 times, respectively, maintaining the “increase” rating.

Risk warning: Order execution is slow, policy progress falls short of expectations, new business is not progressing as expected, etc.