Core views

The company's revenue in the first half of the year fell 7.8% year on year, growth rates in the first and second quarters were -2.6%/-12.3%, respectively, net profit fell 12.1% year on year, and growth rates in the first and second quarters were -5.0%/-18.7%, respectively. The main reasons for the decline were: 1) the decline in revenue due to shrinking markets such as highways, municipal administration, and urban rail; 2) accounts receivable and contract assets increased dramatically, and loan amounts increased; 3) Real estate revenue and gross margin declined. The number of new contracts signed by the company dropped 15.3% in the first half of the year, but the emerging business grew rapidly, the resource development business operated steadily, and there were plenty of contracts in hand. The company also adjusted its annual business plan in due course according to industry trends and the actual situation in the first half of the year. It is expected that revenue and performance in the second half of the year will remain stable.

occurrences

The company released its 2024 semi-annual report. The first half of the year achieved revenue of 544.52 billion yuan, a year-on-year decrease of 7.8%, and realized a net profit of 14.28 billion yuan, a year-on-year decrease of 12.1%. The amount of newly signed contracts was 1078.5 billion yuan, a year-on-year decrease of 15.3%, and the amount of unfinished contracts was 6.2 percent, an increase of 5.9% over the end of the previous year.

Brief review

Results for the first half of the year were under pressure. The company's revenue in the first half of the year fell 7.8% year on year, growth rates in the first and second quarters were -2.6%/-12.3%, respectively, and net profit fell 12.1% year on year, and growth rates in the first and second quarters were -5.0%/-18.7% respectively. The main reasons for the decline in performance were: 1) the decline in revenue due to shrinking markets such as highways, municipal administration, urban rail, etc., and increased stock market competition; 2) Due to factors such as the decline in the real estate industry, the company's sales cycle increased 7.7%; 3) Affected by factors such as the decline in the real estate industry, etc. Long, year-on-year real estate revenue It fell 30.8%, and gross margin fell 2.4 percentage points to 12.6%.

Emerging businesses are growing rapidly, and targets for the whole year have been lowered. In the first half of the year, the company achieved a year-on-year decrease of 15.3%. Among them, highway, municipal and urban rail construction and real estate sales declined a lot, and new business signed 166.3 billion yuan, an increase of 32.1% over the previous year. Among them, the growth rates of new water conservancy, hydropower, and clean energy contracts were 57.8% and 47.6%, respectively. The unfinished contract amount was 6.2 percent, an increase of 5.9% over the end of the previous year. The company also lowered its annual target based on the actual situation and industry trends in the first half of the year. The target amount of new contracts was lowered from 3.3 trillion to 2.85 percent, and the revenue target was lowered from 1.3 trillion to 1.234 percent, corresponding to new signings and revenue growth rates of -3.0% and +2.5% respectively in the second half of the year.

The resource utilization sector is operating steadily. In the first half of the year, the company signed a new contract amount of 13.83 billion yuan, up 17.4% year on year, achieving revenue of 4.05 billion yuan, up 7.2% year on year. Overall operation was steady. Copper metal production remained basically flat year on year, cobalt metal production increased 13% year on year, and molybdenum metal production fell 5% year on year. Looking at the subsidiary China Railway Resources, 2024H1 achieved net profit of 2.27 billion yuan, down from 2.75 billion yuan in the same period last year.

Keep the purchase rating and target price of $8.15 unchanged. The company's revenue and performance in the first half of 2024 were under pressure, but the emerging business grew rapidly, and the resource development business operated steadily. The annual business plan was adjusted in due course according to industry trends and the actual situation in the first half of the year, adjusted the company's 2024-2026 EPS to 1.28/1.33/1.40 yuan (the original 2024-2026 forecast was 1.48/1.61/1.74 yuan), and kept the purchase rating and target price of 8.15 yuan unchanged.

Risk analysis

1. The international situation has been turbulent since 2022, and changes in the political situation have adversely affected the overseas expansion and construction of central construction enterprises.

2. The continued downturn in the real estate market may adversely affect construction companies in many ways. The impact of real estate on construction companies is mainly reflected in:

1) The current land market is sluggish, and local government land concession revenue has declined sharply, adversely affecting infrastructure funding sources; 2) In 2023, China's commercial housing transaction amount was 10.3 trillion yuan, down 6.5% from 2022. The downturn in the real estate industry affected new contracts for housing construction companies. The company has a small number of housing construction contracts, which may be affected by this; 3. New business development may fall short of expectations. Some traditional construction companies are deploying new fields other than construction, such as new energy, minerals, and new materials, but some of these fields are more dependent on government resources and their own professional strength. Some have geopolitical risks, and there may be risks of failure in expansion or loss of operation.

4. The company holds a large number of franchise-type assets across the country, which is greatly affected by local economic development, competitive modes of transportation (high-speed rail, aircraft, etc.), and the construction of new highways in the same direction. If the traffic volume held by the company falls short of expectations, the valuation of the highway sector may be affected.