Core views:

Huayang International released its 2024 interim report. According to the interim report, in the first half of '24, the company achieved revenue of 0.52 billion yuan, -26% year over year; net profit to mother of 0.059 billion yuan, -16% year over year; deducted non-net profit of 0.055 billion yuan, +30% year over year. On a quarterly basis, 24Q1/24Q2 revenue was 0.229/0.291 billion yuan, respectively, -11%/-35%; net profit to mother was 0.003/0.056 billion yuan, -25%/-15%, respectively; deducted non-net profit was 0.002/0.053 billion yuan, respectively, which turned the year-on-year loss into profit/ +1%.

Gross margin increased steadily in the first half of the year, and net operating cash outflow increased. The gross profit margin in the first half of the year was 27.7%, up 0.5 pct year on year, and the Q2 gross profit margin was 35.7%, up 1.3 pct year on year. The net operating cash flow outflow for the first half of '24 was 0.125 billion yuan, and the net outflow for the same period in '23 was 0.01 billion yuan.

The net operating cash outflow for Q2 was 0.03 billion yuan, and the net outflow for the same period in '23 was 0.093 billion yuan.

The full-process consulting and construction management business is developing rapidly, and the development of prefabricated buildings continues to be strengthened. In terms of business, in the first half of '24, the architectural design business achieved revenue of 0.437 billion yuan, -20% year-on-year, gross profit margin of -0.7pct; cost consulting business of 0.052 billion yuan, year-on-year -18%, gross profit margin 18.7%, year-on-year -2.9pct; general engineering contracting business of 0.009 billion yuan, -88% year-on-year, gross profit margin -69.0%, year-on-year -73.1 pct; full-process consulting and construction management business of 0.016 billion yuan, YoY +29%, gross profit margin 42.4%, +22.0pct year over year. By region, South China/Central China/East/Southwest/Other regions achieved revenue of 4.24/0.42/0.033/0.007/0.013 billion yuan respectively in the first half of '24, compared with -27%/-43%/+16%/-44%/+22%. Eastern China grew faster. In the first half of the year, the company continued to strengthen research and development of technologies such as prefabricated buildings, BIM, AI design, green buildings, structural overrun, automatic mapping, energy saving and emission reduction, and actively promoted research on construction products such as urban renewal, social security housing, orbital buildings, education, medical care, TOD, industrial elevations, and underground space.

Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 0.165/0.188/0.214 billion yuan respectively. Considering comparable company valuations and future performance growth rates, the company is given a 24-year 14 PE valuation, corresponding to a reasonable value of 11.81 yuan/share, maintaining a “buy” rating.

Risk warning: Overseas demand falls short of expectations, domestic accounts receivable risk, exchange rate risk.