Incident: The company released its 2021 semi-annual report. The company achieved operating income of 1,120 million yuan in the first half of the year, an increase of 20.94% over the previous year; net profit attributable to shareholders of the parent company was 239 million yuan, an increase of 40.61% over the previous year; net profit attributable to the parent company after deducting non-recurring profit and loss was 235 million yuan, an increase of 43.67% over the previous year; and earnings per share of 0.60 yuan, an increase of 27.66% over the previous year.

Revenue grew steadily, and Q2 performance grew strongly. 2021H1 achieved revenue of 1,120 billion yuan, an increase of 20.94% over the previous year and an increase of 29.33% over 2019H1. Revenue from all of the company's main businesses maintained an upward trend. Revenue from survey and design, planning and consulting, and general engineering contracting was 974 million yuan, 52 million yuan, and 93 million yuan respectively, up 19.62%, 39.30%, and 26.60% respectively over the same period last year. Revenue within and outside the province was 686 million yuan and 434 million yuan respectively, up 19.85% and 22.71% respectively over the previous year. On a quarterly basis, 2021/Q2 revenue increased 29.10%/14.82% year over year. During the period, the company achieved net profit of 239 million yuan, a year-on-year increase of 40.61%, far higher than the year-on-year growth rate of revenue during the same period, an increase of 52.75% over 2019H1. The year-on-year growth rate of net profit for Q1/Q2 in a single quarter was 25.75%/53.95%, and the Q2 performance growth rate was strong.

Gross margin has increased dramatically, funds on hand are sufficient, and debt ratios have declined. 2021H1's gross margin was 41.17%, an increase of 4.11 pcts over the previous year. The gross margins of each business segment were: survey and design 43.02% (+2.54 pcts year-on-year), planning consulting 43.47% (+21.09 pcts year-on-year), and general engineering contracting 20.30% (+13.93 pcts year-on-year). The gross margin of the planning consulting and general engineering contracting business improved markedly, helping to increase the overall gross margin. The company's expense rate control was effective during the period, from 13.95% to 11.99%, mainly due to management expenses falling to 6.67% (year-on-year - 1.72 pcts). The company's net interest rate was 21.59%, an increase of 2.95 pcts over the previous year, and profitability increased.

The company has sufficient monetary capital. At the end of 2021H1, the capital on hand was 725 million yuan, accounting for 18.43% of total assets. Accounts receivable and contract assets were $217 million and $1,054 million respectively, up 45.41% and 35.93%, respectively. The company's operating cash outflow during the period was 332 million yuan. The net outflow increased, mainly due to the impact of the epidemic and the slowdown in repayments in the first half of the year. At the end of the period, the company's balance ratio was 53.68%, down 7.83% from the end of the same period last year.

Abundant on-hand orders helped release performance, and horizontal business expansion achieved remarkable results, fully benefiting from the growing demand for urban rail construction in the context of urbanization. The company is a high-quality leader in the field of urban rail transit design. It has the highest qualifications in the survey and design industry. It has sufficient experience in major complex projects, remarkable technical competitiveness, sufficient controlling shareholder projects, and remarkable project resource channel advantages. At the end of 2021H1, the company's on-hand orders reached 12 billion yuan, 6.4 times the revenue in 2020, and future performance is highly certain. As China's urbanization rate continues to rise and urban agglomeration construction progresses, the scale of investment in urban rail transit construction, as a new type of infrastructure, has rapidly increased, and has become a new growth point for infrastructure investment. The “Outline for the Construction of a Strong Transportation Country” and the “Outline of the National Integrated Three-dimensional Transportation Network Plan” both set out requirements for urban rail transit construction goals. Plans for new and adjusted rail transit in many places were approved. At the end of 2020, the amount of research and approved investment for routes under construction in mainland China reached 4528.93 billion yuan. The company is expected to benefit first from the release of demand in the national rail transit market, and its market share is expected to continue to increase. In addition, the company takes rail transit as the core, expands its business dimensions horizontally, actively participates in complex development projects with rail transit stations as the core, expands its business to various fields such as construction and municipal design, undertakes multiple projects, extends the length of the business chain, lays out general contracting for civil defense projects, and continues to build new business growth points, and its comprehensive strength continues to improve.

Valuation and investment advice: We are optimistic about the company's future growth space and raise the company's profit forecast. The company is expected to achieve revenue of 2,318 million yuan, 2,822 million yuan and 3.402 billion yuan in 2021-2023, up 24.0%, 21.7% and 20.6%, respectively; achieve net profit of 367 million yuan, 445 million yuan and 537 million yuan, up 28.1%, 21.2% and 20.7%, respectively; EPS is 0.92 yuan, 1.11 yuan and 1.34 yuan respectively. Dynamic PE is respectively 21.1 times, 17.4 times, and 14.4 times, and PB is 3.5 times, 2.9 times, and 2.4 times, respectively, maintaining the “Buy-A” rating, with a target price of 26.4 yuan for 6 months.

Risk warning: large macroeconomic fluctuations; epidemic control falls short of expectations; policy progress falls short of expectations; fixed investment falls short of expectations; loss of personnel; local government financial performance falls short of expectations, etc.