Incident: The company announced that in 2024H1, revenue of 1.661 billion yuan decreased by 25.82%; net profit to mother of 0.154 billion yuan decreased by 41.28%; net profit of non-return to mother of 0.15 billion yuan decreased by 41.97%. Among them, Q2 revenue of 0.871 billion yuan decreased by 36.27%; net profit due to mother of 0.061 billion yuan decreased by 63.47%; net profit not attributable to mother of 0.06 billion yuan decreased by 64.10%.

The slowdown in new construction has affected business development and continued expansion into emerging markets. By business, in 2023, the company's planning and research, survey and design, comprehensive inspection, digital and smart business, and low-carbon and environmental protection business achieved revenue of 2.29/8.23/0.196/0.122/0.184 billion yuan, a year-on-year change of -18.09%/-33.86%/-17.08%/-9.01%/-5.41%/-5.41%; each business achieved gross profit margin of 39.0%/41.6%/27.3%/37.8%, year-on-year change -4.1pct/1.1pct/- 3.2pct/-20.9pct/17.7pct The pressure on the company's main business was mainly due to a slowdown in the start of construction in the first half of the year. However, the company's steady transformation and development, and had a layout and accelerated promotion in the first half of the year. In the first half of the year, the company's emerging businesses such as digital intelligence, low-carbon environmental protection, and comprehensive inspection accounted for 30.7% of revenue, up 5.1 pct. At the same time, traditional businesses such as survey and design strengthened cost reduction and efficiency, which led to an increase in gross margin.

Q2 Profit margins and cash flow are under pressure. The company's gross sales margin in the first half of the year was 36.37%, down 0.4 pct; the cost ratio for the period increased by 3.01pct; the company's sales/management and R&D/finance expense ratios were 6.40%/15.31%/-0.32%, respectively, with a year-on-year change of 1.48pct/1.7pct/-0.18pct; the asset and credit impairment loss rate decreased by 3.78% and 0.42pct; net profit margin to mother 9.27% decreased by 2.44pct. In the first half of the year, the company's revenue increased 12.53 pcts compared to 115.27%, and the current payment ratio increased 25.26 pct; the net cash outflow from operating activities was 0.635 billion yuan, an increase of 0.376 billion yuan over the previous year, mainly due to a decrease in cash received from sales of goods and services in Q2; the size of the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, advance accounts receivable and contract liabilities were 41/4.34/3.67/1.22 billion yuan, respectively, compared to the beginning of the year Change -6.18%/0.06%/-6.55%/-3.82%.

Investment proposal: We expect the company to achieve operating income of 4.583/4.695/4.995 billion yuan and net profit to mother of 0.514/0.531/0.575 billion yuan in 2024-2026. The closing price on August 30 was 9.24/8.95/8.27 times PE, respectively, maintaining the “gain” rating.

Risk warning: Macroeconomic downside risks, technological advancement falls short of expectations, and the market competition pattern deteriorates.