Incident: The company announced that 2024H1 achieved a 4.61% decrease in revenue of 516.137 billion yuan; net profit to mother of 11.902 billion yuan, a decrease of -12.80%; net profit of non-return to mother of 11.151 billion yuan, a decrease of 13.54%. Among them, Q2 revenue of 241.188 billion yuan decreased by 9.84%; net profit to mother of 5.877 billion yuan decreased by 24.07%; net profit of non-return to mother of 5.374 billion yuan decreased by 25.70%.

Revenue recognition in the engineering industry chain is slowing down, and the real estate business is speeding up housing deliveries. By business, in the first half of the year, engineering contracting, planning and design consulting, industrial manufacturing, real estate development, material logistics and other businesses achieved revenue of 4516.15/80.02/11.233/31.548/42.165 billion yuan, respectively, with year-on-year changes of -6.58%/-4.57%/-7.65%/47.34%/-6.81%/-6.81%. The rapid growth rate of the real estate business was mainly due to increased housing deliveries by affiliated units; achieved gross profit margins of 7.56%/42.35%/21.05%/11.44%/ 9.21% year-on-year change of 0.03pct/1.72pct/-2.33pct/-0.88pct/1.10pct. By region, the company's domestic/overseas revenue for the first half of the year was 485.303/30.834 billion yuan, respectively, with year-on-year changes of -5.17%/5.28%, achieving gross profit margins of 9.30%/6.24%, respectively, and 0.24pct/-0.07pct year-on-year respectively.

The increase in the expense ratio during the period dragged down the net interest rate, and the net operating cash outflow increased year-on-year. In the first half of the year, the company's gross sales margin increased by 9.12% by 0.21pct; the cost ratio for the period was 4.80% and 0.41pct, with sales/management and R&D/finance expenses ratios of 0.57%/3.65%/0.57% respectively, a year-on-year change of -0.04pct/0.17pct/0.28pct, mainly due to a decline in revenue; asset and credit impairment loss ratio of 0.44% increased by 0.08pct; the net profit margin decreased by 2.3% and 0.22pct. In the first half of the year, the company's revenue decreased by 3.77 pcts compared to 96.11%, and the current payment ratio increased by 8.7 pcts; the net cash outflow from operating activities was 81.676 billion yuan, an increase of 62.333 billion yuan over the previous year. As of the end of June, the size of the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, accounts receivable plus contract liabilities was $1817.1/616.64/511/122.14 billion, respectively, a change of 14.25%/2.87%/-6.24%/-18.81% from the beginning of the year.

Investment proposal: We expect the company to achieve operating income of 1090.337/1081.189/1099.646 billion yuan in 2024-2026 and net profit of 22.093/21.449/22.42 billion yuan to mother. The PE corresponding to the closing price on August 30 was 5.46/5.65/5.37 times, respectively, maintaining the “Overweight” rating.

Risk warning: Steady growth falls short of expectations; risk of large macroeconomic fluctuations; slow order execution.