1H24 revenue of Runjian Co., Ltd. was -3.7% YoY, lower than market expectations

The company announced 1H24 results: revenue -3.7% YoY to 4.424 billion yuan; net profit to mother -17.2% YoY to 0.236 billion yuan; deducted non-net profit -18.4% YoY to 0.229 billion yuan. Single quarter 2: revenue -0.7% YoY to 2.285 billion yuan, +6.9% month-on-month; net profit to mother -25.4% YoY to 0.108 billion yuan, -14.9% month-on-month; after deducting non-net profit -27.7% YoY to 0.103 billion yuan, -17.5% month-on-month, due to slow revenue confirmation from some projects, the company's performance fell short of market expectations.

Development trends

The construction of computing power networks and overseas business layout continue to advance. The progress of some of 1H24's projects and revenue recognition were relatively slow, and revenue declined year-on-year. By business, in terms of the communication network business, the company launched a communication network management and operation model, deeply integrating AI+ applications, and 1H24 revenue grew steadily, +0.9% to 2.077 billion yuan; the 1H24 revenue year over year was -4.1% to 1.341 billion yuan. We expect to gradually improve in the future as business adjustments gradually come to an end; in terms of energy network business, 1H24 revenue was -19.3% to 0.78 billion yuan, according to the company According to the announcement, the company's virtual power plant digital scheduling platform has an aggregation capacity of more than 1 GW, 25,000+ access monitoring points, and the integrated communication energy management business has already launched more than 350 projects in 23 provinces. We believe that as the total installed capacity of new energy sources continues to increase, the energy network business is expected to gradually recover. In terms of computing power network business, the company grasped strong market demand and continued to increase investment to improve the efficiency of computing power centers. 1H24 revenue was +32.8% year-on-year to 0.225 billion yuan. In terms of overseas business, the company is actively expanding its business in the ASEAN region, focusing on the development of the digital economy. As of June 2024, it has covered 10 countries and regions and undertook 100+ local projects in the ASEAN region.

Payouts are slowing, and cash flow is under pressure in the short term. In 1H24, the company's overall gross margin was -1.9ppt to 16.8% year over year, with the gross margin of communications/information/energy/computing power networks -0.5/-2.5/+4.6ppt to 20.1%/13.6%/12.6%/19.7%, respectively. In 1H24, the company's total three expenses were +2.3% to 0.433 billion yuan, and the sales/management/R&D expenses ratio was -0.4/+0.5/+0.5ppt to 2.9%/3.2%/3.8% year-on-year, respectively. In 1H24, the company's net operating cash outflow increased by 0.982 billion yuan to 2.399 billion yuan year-on-year, mainly due to increased investment in new business sectors such as computing power, compounded by a slowdown in repayments, and the number of accounts receivable turnover days was +36 to 253 days year-on-year.

Profit forecasting and valuation

We are optimistic about the company's long-term steady growth capacity and maintain an outperforming industry rating. Considering the uncertainty of revenue recognition and gross margin pressure, we cut 2024/25 revenue 12%/16% to 9.44/11.12 billion yuan, and 2024/25 net profit 30%/38% to 0.45/0.54 billion yuan. The target price was lowered by 36% to 32 yuan (based on 20/17x 2024/25e P/E). The current stock price corresponds to 17/14x 2024/25e P/E, with 23% upside.

risks

Major customer dependency risk; market competition heightens risk; managing risk across regions.