In the first half of the year, revenue was -4.6% year-on-year, and net profit to mother was -12.8% year-on-year. In the first half of 2024, the company achieved operating income of 516.14 billion yuan, -4.6% year-on-year, and realized net profit to mother of 11.9 billion yuan, or -12.8% year-on-year.

The first and second quarters of 2024 achieved operating income of 274.9/241.2 billion yuan, +0.5%/-9.8% YoY, and net profit to mother of 6.03/5.88 billion yuan, respectively, or +2.0%/-24.1% YoY.

The company's revenue and profit increased slightly in the first quarter, while revenue and profit declined significantly in the second quarter due to industry sentiment.

The amount of newly signed contracts declined, and investment and operation businesses were rapidly reduced. In the first half of 2024, the company achieved a new contract amount of 1100.6 billion yuan, or -19.0%, of which the new contract amount for engineering contracts was 792.9 billion yuan, -17.5% compared to the same period last year, and the pre-New Year contract for investment and operation was 57.4 billion yuan, or -58.2% compared to the same period last year. Facing the downturn in the industry, the growth rate of new contracts signed in the company's engineering business declined. At the same time, the company took the initiative to reduce the investment business. The amount of new contracts signed for investment and operation was +6.7% year-on-year in the first quarter, and a sharp decrease of 88.3% year-on-year in the second quarter.

There was a slight increase in gross margin, and the cost rate rose due to the decline in revenue. The company's overall gross margin for the first half of 2024 was 9.12%, down 1.28 percentage points from the full year of the previous year, and up 0.21 percentage points from the same period last year.

The gross margin for the first two quarters was 7.79%/10.64%, respectively, +0.02/+0.57 percentage points over the same period last year. The company's expenses for the first half of 2024 were 24.77 billion yuan, +4.3% year-on-year, of which management/sales/R&D expenses were -2.9%/-10.6%/+3.8%, respectively. Affected by the decline in revenue, the cost rate for the period was 5.45%, up 0.80 percentage points from the same period last year.

Both payment and receipt sides have been improved, and core asset turnover efficiency has improved. At the end of the first half of 2024, the balance of the company's notes receivable and accounts receivable was $181.7 billion, up 14.3% from the beginning of the year, and the balance of contract assets was $302.6 billion, up 3.7% from the beginning of the year. The net increase in the two categories in the second quarter was only $0.92/2.22 billion, reflecting a marginal improvement in the revenue quality of the company's cash exchange projects and stabilizing the turnover efficiency of accounts receivable and contract assets. At the end of the first half of 2024, the company's notes payable and account balance was $511 billion, a decrease of 34 billion yuan from the beginning of the year, a decrease of 6.3%, and payment pressure decreased.

The proportion of non-cash income has risen, and cash flow is under pressure. The company's net operating cash outflow in the first half of 2024 was 81.7 billion yuan, an increase of 62.4 billion yuan over the same period last year. At the end of the first half of 2024, the company's non-current assets increased by 7.0% compared to the end of the previous year, higher than the growth rate of current assets. Among them, long-term receivables, long-term equity investments, and intangible assets increased by 9.9%/3.7%/24.8%, respectively. The company's existing PPP projects have been implemented one after another to form book assets and generate non-cash income. As a result, the cash content of revenue has decreased, and actual operating cash flow is still under pressure.

Investment advice: Lower profit forecasts and maintain the “better than the market” rating. The construction industry has entered a stage of stock development. New infrastructure construction and investment implementation are under great pressure. Local government debt conversion work continues to advance, and the company's engineering business repayment is under pressure in the short term. However, from a long-term perspective, the company, as a leading central construction enterprise, has outstanding brand influence and financing cost advantages. Cash flow is expected to continue to improve in the future as depreciation pressure is gradually released and capital expenditure is continuously reduced. The company's net profit for the next three years is predicted to be 23.8/22/21.4 billion yuan (previous value of 28.9/30.8/33.6 billion yuan) and earnings per share of 1.75/1.62/1.58 yuan (previous value 2.13/2.27/2.47 yuan), corresponding to the current stock price PE of 4.4/4.7/4.9X, maintaining a “superior to the market” rating.

Risk warning: Infrastructure investment falls short of expectations; project investment risk; international investment and operation risk, etc.