Incident: The company achieved revenue of 31.73 billion yuan, an increase of 0.7% in 2024Q1-3; net profit to mother of 2.06 billion yuan, a 2.9% increase; and a 2.2% decrease of 2.2% after deduction of 2.05 billion yuan. Among them, 2024Q3 revenue of 10.84 billion yuan decreased by 1.1%; net profit to mother of 0.66 billion yuan increased by 4.2%; after deduction, 0.65 billion yuan to mother decreased by 5.1%.

There was a slight decline in engineering and equipment business orders, and there was a high increase in new orders signed in the mine operation and maintenance business: the company achieved new orders of 52.79 billion yuan in 2024Q1-Q3, an increase of 1%. By business, engineering services, high-end equipment manufacturing, production and operation services, and other businesses achieved new contract amounts of 336.3/4.98/13.12/1.06 billion yuan, respectively, an increase of -6%/-7%/36%/-31%, respectively. In production and operation services, mine operation and maintenance and cement operation and maintenance achieved new orders of 8.19/2.08 billion yuan respectively, an increase of 45%/4% respectively. By region, the company achieved new signings of 22.58/30.2 billion yuan in domestic and overseas 2023Q1-Q3, respectively, -5%/6% compared to the same period. The company currently has sufficient contracts, reaching 62.06 billion yuan, an increase of 4.75%, and there is still support for future operations.

Financial expenses dragged down net profit, and operating cash flow was under year-on-year pressure. The company's 2024Q1-3 gross sales margin was 18.86%, up 0.24pct; the period expense ratio was 10.41% and 0.55pct. Among them, the company's sales/management and R&D/finance expense ratios were 1.15%/8.39%/0.88%, and the year-on-year change was -0.01pct/0.16pct/0.41pct. The increase in financial expenses or due to the company's frequent exchange losses this year; the asset and credit impairment loss ratio was 0.26% and decreased by 0.17pct, mainly due to the increase in the company's accounts receivable management efforts. Related credit risk decreased; net interest rate to mother increased by 6.49% and 0.14pct. The company's 2024Q1-3 net operating cash flow outflow was 0.26 billion yuan, an increase of 0.246 billion yuan over the same period last year; the revenue ratio decreased by 3.20 pcts from 78.45%; and the payout ratio decreased by 1.03 pcts from 79.58%. As of 2024H1, the company's accounts receivable and notes, inventory+ contract assets, accounts payable and notes, accounts receivable + contract liabilities were $115.3/12.06/16.2/7.56 billion, respectively, with a year-on-year change of 13.47%/23.79%/13.00%/-0.77% from the beginning of the year.

Investment proposal: We expect the company to achieve operating income of 48.901/51.916/54.688 billion yuan and net profit of 3.029/3.28/3.684 billion yuan in 2024-2026. The corresponding PE was 8.98/8.30/7.39 times, respectively, maintaining the “gain” rating.

Risk warning: The progress of the cement operation and maintenance business falls short of expectations, the external expansion of the equipment business falls short of expectations, and the “Belt and Road” progress falls short of expectations.