Revenue in the first half of the year was +2.8%, and net profit to mother was +1.7% YoY. In the first half of 2024, the company achieved operating income of 1144.62 billion yuan, +2.8% YoY, and realized net profit to mother of 29.45 billion yuan, +1.7% YoY.

The first and second quarters of 2024 achieved operating income of 549.3/595.3 billion yuan, +4.7%/+1.2% year-on-year, and net profit to mother of 14.92/14.53 billion yuan, respectively, and +1.2%/+2.1%, respectively.

Affected by the decline in downstream demand in the construction industry, the company's revenue and profit growth rate declined in the first half of the year. Revenue growth narrowed month-on-month in the second quarter, but profit growth rebounded against the trend.

The amount of new contracts signed bucked the trend, and the amount of new contracts signed overseas doubled. From January to August 2024, the company achieved a new contract amount of 2852.2 billion yuan, +6.5% year-on-year, of which the construction industry signed a new contract amount of 2618.3 billion yuan, +9.7% year-on-year. Among them, the amount of new contracts signed for housing construction/infrastructure/survey design was 1756.4/852.7/9.2 billion yuan, respectively, +1.6%/-3.2% compared with the same period last year. By region, the amount of new contracts signed domestically was 2476.9 billion yuan, +6.7% year-on-year, and the amount of new contracts signed overseas was 141.4 billion yuan, +113.5% year-on-year.

The margin of gross margin stabilized. The company's overall gross margin for the first half of 2024 was 9.44%, down 0.39 percentage points from the full year of the previous year and 0.14 percentage points lower than the same period last year. The gross margin for the first two quarters was 8.09%/10.70%, respectively, +0.00/-0.20 percentage points in the same period last year. The year-on-year decline in the company's gross margin narrowed markedly, showing initial signs of stabilization.

Expenses were relatively rigid, and the cost rate was relatively stable and increased slightly during the period. The company's expense ratio for the first half of 2024 was 4.21%, down 0.50 percentage points from the full year of the previous year, down 0.27 percentage points from the same period of the previous year. Management/R&D/sales/financial expenses were 170.5/17.5/3.58/10.1 billion yuan respectively, +0.1%/-9.7%/+8.8%/-1.1%, respectively. By strengthening fine management and cost control, the company's management expenses remained flat year over year, and R&D expenses were clearly reduced, which led to a decrease in the company's cost ratio during the period.

Contract assets have grown dramatically, and payment pressure is still high. At the end of the first half of 2024, the company's notes receivable and account balance was $315.4 billion, up 21.2% from the beginning of the year, and the balance of contract assets was $499.3 billion, up 49.1% from the beginning of the year. Combined, the two increased by $219.4 billion from the beginning of the year; the balance of notes payable and accounts payable was $825.4 billion, up $124.7 billion from the beginning of the year, an increase of 17.8%. The sharp increase in contract assets reflects a clear lag in customer confirmation of project progress. The ratio of net value added value of contract assets to operating income in the second quarter reached 14.4%, the highest value in the past three years. The growth rate of all types of payables (including long-term payables and other payables) narrowed in the first quarter, but there was a marked recovery in the second quarter, indicating that the company will still face greater payment pressure.

The pressure on cash flow has not abated, and the current balance of payments continues to decline at the same time. In the first half of 2024, the company achieved a cash inflow of 1001.6 billion yuan from operating activities, a year-on-year decrease of 79.4 billion yuan, a year-on-year decrease of cash outflow of 1057.1 billion yuan, a year-on-year decrease of 75.9 billion yuan, and a net operating cash outflow of -68.9 billion yuan, an increase of 58.3 billion yuan over the previous year. Looking at the payout ratio and payout ratio, the payout ratio for the first quarter was 100.7%/118.7%, respectively, and the payout ratio for the second quarter was 75.3%/76.9%, respectively. Both are the company's lowest level in the past five years. The down payment ratio continues the trend of simultaneous decline in 2023, reflecting a marked slowdown in the company's repayment and payment pace, and the pressure on cash settlement throughout the industry chain is strong. As a general contractor, the company was able to transfer the impact of the decline in repayment ratios to upstream subcontractors and suppliers.

Investment advice: Maintain profit forecasts and maintain a “better than the market” rating. New construction and investment in the construction industry are under great pressure. Real estate investment is sluggish, local government debt conversion efforts continue to advance, and China Construction is rapidly increasing its market share with management advantages, financing cost advantages, and strong brand strength. The company's net profit for 24-25 is estimated to be 56.1/60.5 billion yuan, with earnings per share of 1.34/1.44 yuan, corresponding to the current share price PE of 4.1/3.8X, maintaining a “superior to the market” rating.

Risk warning: macroeconomic downside risk, risk of changes in real estate and infrastructure-related policies, risk of continuing decline in the real estate industry, risk of impairment of accounts receivable and contract assets.