The gross margin of various sectors increased year-on-year, and overseas business performance was outstanding. Maintaining the “buy” rating, China Communications Construction released its 2024 semi-annual report. The company's revenue and profit declined slightly in the first half of the year, the amount of new contracts signed increased year by year, gross margin of various businesses improved, and overseas business revenue and new signing performance were outstanding. We maintain our profit forecast. We expect the company's net profit to be 25.69, 27.94, and 30.75 billion yuan for 2024-2026, corresponding EPS of 1.58, 1.72, and 1.89 yuan. The PE corresponding to the current stock price is 4.8, 4.4, and 4.0 times, maintaining a “buy” rating.

Revenue declined slightly, and gross margin of various businesses achieved year-on-year growth. The company achieved revenue of 357.45 billion yuan, or -2.5% in the first half of 2024. Among them, the growth rates of infrastructure construction, infrastructure design, dredging, and other businesses were -2.7%, -10.3%, 3.3%, and 12.6%, and overseas business revenue growth rate +23.5%; realized net profit to mother of 11.4 billion yuan, -0.6% year on year; net operating cash flow - 74.16 billion yuan, gross margin +0.84 pct year on year 11.65%, of which gross margins for infrastructure construction, infrastructure design, dredging, and other businesses were +0.63 pct, +1.51pct, +1.43pct, and +4.20pct, respectively; basic earnings per share were 0.66 yuan, -1.5% year over year; no 10 shares were distributed in mid-term dividends of about 1.4 yuan. The decline in the company's net profit due mainly to (1) the increase in taxes on individual overseas subsidiaries and the increase in the effective income tax rate to 19.84%; (2) the year-on-year increase in sales, R&D, and interest expenses, and the year-on-year decrease in asset disposal income.

The amount of new contracts signed continues to grow, and the growth rate of overseas projects is high

The amount of new contracts signed by the company in the first half of the year was 960.87 billion yuan, or 48% of the annual target. The increase in the amount of new contracts was mainly due to increased demand for overseas projects, urban construction, etc. Among them, infrastructure construction, infrastructure design, dredging and other businesses were +9.4%, +21.9%, -4.1%, and -38.7%, while the amount of new contracts signed for overseas business was +38.9% year-on-year, accounting for about 20%. Looking at the breakdown of new orders signed for infrastructure construction in the company's main business, road and bridge construction fell by more than 30% year on year, and urban construction and overseas projects grew by more than 20% year on year. By the end of the first half of the year, the company had orders of 3536.24 billion yuan.

Construction of infrastructure investment projects has slowed down. The main projects that have entered the operation period are 60.82 billion yuan of infrastructure investment projects signed by the company in the first half of the year, or -49% compared to the same period. Construction of investment infrastructure projects has slowed down. Among them, BOT, comprehensive urban development, and government-paid projects accounted for 53%, 29%, and 18% respectively. The estimated amount of construction and security contracts that can be accepted is 54.63 billion yuan. The company's projects that have entered the operation period are mainly expressways. Operating revenue for the first half of the year was 4.136 billion yuan, net loss was 1.078 billion yuan, and the investment amount not completed by the end of the first half of the year was 52.34 billion yuan.

Risk warning: Industry recovery falls short of expectations, policy relaxation falls short of expectations, and company sales recovery falls short of expectations.