Incident: China Railway Construction released its 2024Q2 financial report.

Operating conditions: The company 24H1 achieved revenue of 516.137 billion yuan/ -4.61%, achieved net profit of 11.902 billions/ -12.80%, and signed a total of 1100.622 billion yuan/ -19.02% of new contracts, putting pressure on short-term operations.

The decline in historical order growth has put pressure on the revenue and profits of the main business. In 2022, the company signed a total of 3254 billion yuan/ +15.09% of new orders, and in 2023, the company signed new orders of 3293.9 billion yuan/ +1.51%. The decline in order growth in the full year of '23 affected revenue and profit performance in '24. By structure, the engineering contracting business achieved revenue of 451.614 billions/ -6.58%, industrial manufacturing revenue of 11.233 billion yuan/ -7.65%, and real estate development business revenue of 31.548 billion yuan/ +47.34%, mainly due to increased 24H1 housing deliveries, material logistics business revenue of 42.165 billion yuan/ -6.81%.

Infrastructure project orders declined year on year, and mining/water conservancy orders grew rapidly. 24H1 signed a new contract amount of 943.54 billion yuan for infrastructure construction projects such as engineering contracting, investment and operation, green environmental protection, etc., accounting for 85.73% of the total number of new contracts signed, a year-on-year decrease of 19.23%. Among them, the mining contract amount was 69.77 billion yuan/ +413.79%, and water conservancy and water transport engineering orders were 54.63 billion yuan/ +39.68%. The company strives to strengthen the development of emerging businesses in mining, water conservancy and other fields, and orders are growing rapidly.

The four cost rates during the 24H1 period were 4.80%, and the overall cost rate remained stable. 2024H1 Company's sales/management R&D/finance expense ratios were 0.57%/1.98%/1.67%/0.57%, respectively, -0.04/+0.14/+0.28pct year-on-year, respectively. Overall expenses remained stable, and the increase in interest expenses led to a slight increase in financial expenses.

Investment advice: The company has an industry-leading position in the field of road and railway construction. In the short term, due to certain pressure on order growth, the company's revenue growth is under pressure, but currently there are still road and railway construction needs in some overseas countries and regions. In addition, the company is also actively expanding orders in emerging fields. In the future, as orders in corresponding fields pick up, the company's revenue is expected to resume growth. Overall, the company's net profit for 2024-2026 is 24.219 billion/26.463 billion/28.423 billion, corresponding to the current 3.98/3.64/3.39x PE, giving it a “recommended” rating.

Risk warning: infrastructure demand falls short of expectations, funding falls short of expectations, project progress falls short of expectations