Event: The company publishes its 2024 interim report. 2024H1 achieved operating income/net profit to mother/ net profit after deduction of 91/2.8/3.1 billion yuan, -0.3%/-3.6%/+3.5% YoY; in 24Q2, the company achieved operating income/net profit to mother/ net profit after deduction of 45.9/1.6/1.9 billion yuan, -5.5%/-11.6%/+3.3% YoY.

Comment:

There are plenty of orders in hand, and the number of new overseas contracts is growing rapidly. 2024H1 signed a new contract amount of 203.57 billion yuan, an increase of 10.1%, and the construction engineering contracting business increased 10.8%. Among them, new contracts for chemical engineering/infrastructure/environmental management were 150.3/35.1/9 billion yuan, an increase of 9.3%/10.3%/46.7%, and 24H1 signed a new industrial and new materials sales business contract of 4.19 billion yuan, a decrease of 1.6%. The amount of new contracts signed domestic/overseas by 24H1 was 162.2/41.3 billion yuan, -3.0%/+132.5% year-on-year.

The main chemical industry and industrial business grew steadily, and overseas business volume increased sharply. In 24H1, the company's chemical engineering/infrastructure/environmental treatment/industrial and new materials/modern services industry achieved revenue of 739/101/1.1/4.4/0.7 billion yuan, +4.3%/+6.6%/-53.0% year-on-year, with gross margins of 9.9%/5.8%/8.3%/9.6%/9.5%, respectively, +0.8/+4.8pcts. Also, due to the slowdown in project construction due to tight local finances, the company's infrastructure and environmental management business revenue declined year-on-year, causing the company's 24H1 revenue to drop slightly year-on-year. The increase in financial expenses due to exchange rate fluctuations and a sharp increase in non-operating expenses (367% increase over the same period) caused the company's 24H1 net profit to fall year-on-year. On the industrial side, the Tianchen Yaolong Caprolactam Project and the Tianchen Qixiang New Material Project are producing acrylonitrile at full capacity, and new industrial projects such as Tianchen Qixiang and Hualu New Materials have accumulated operating data and production experience to continuously optimize operation; however, business adjustments have greatly reduced the revenue of the modern service industry. 24H1's main domestic/ overseas business revenue was 69.7/20.7 billion yuan, -3.2%/+10.0% year over year, gross margin was 9.2%/10.1%, up 0.9/1.5pcts, and overseas business volume increased sharply.

Gross profit margins continued to improve, and increased exchange losses increased financial expense ratios. 24H1's gross margin/period expense ratio/net margin was 9.4%/5.1%/3.4%, +1.1/+0.9/-0.1 pct. 24H1's sales expense ratio was 0.2%, basically the same as the same period last year. Affected by the year-on-year increase in exchange losses, 24H1's financial expenses ratio increased significantly, and the management expense ratio also increased slightly. The R&D expense ratio of 24H1 company was 1.9%/0.4%/2.6% year-on-year, +0.4/0.6/-0.1 pct. 24H1's net operating cash flow was -4.57 billion yuan, an increase of 4.8 billion yuan over the same period last year. Mainly due to a decrease in deposits absorbed by the company's financial companies, 24H1's absorption of deposits and interbank deposits decreased by 36.6% year-on-year.

Profit forecast, valuation and rating: Considering the impact of exchange gains and non-operating expenses, the company's operating performance in the first half of the year was under pressure, so we lowered the 24-26 net profit forecast to 5.45/5.97/6.63 billion yuan (down 7.4%/7.0%/7.0% year-on-year). The high increase in the number of new contracts signed by the company and the rapid growth of overseas business are expected to drive steady growth in the company's performance, so we maintained a “buy” rating.

Risk warning: Risk of industrial projects falling short of expectations, risk of large fluctuations in the price of engineering raw materials, etc.