Q1 revenue performance was slightly pressured, and Q2 growth is expected to accelerate. 2024Q1 achieved operating income of 265 billion yuan, a decrease of 2.6%; net profit attributable to mother was 7.48 billion yuan, a decrease of 5%; net profit without return to mother fell 3%, putting a slight pressure on performance, mainly due to: 1) Q1 was affected by factors such as slow issuance of localized bonds and special bonds, and the physical infrastructure workload fell short of expectations. Combined with a sharp contraction in the real estate business, the total revenue declined. 2) Profits in the resource utilization sector declined (the average price of metals such as copper and molybdenum was lower than the same period last year), leading to a year-on-year decline of 0.33 pct in a single quarter. By business, Q1 infrastructure construction/design consulting/equipment manufacturing/real estate development/other businesses achieved revenue of 2356/48/66/42/144 billion yuan respectively, +0.4%/+1%/-9%/-47%/-20% over the same period last year. Recently, the Development and Reform Commission stated that it will strengthen project supervision. At the same time, judging from funding sources, it plans to issue an additional 112.92 billion special bonds in the second quarter, a sharp increase of 78% over Q1. Combined with special treasury bonds and funding from the central budget, infrastructure funding is expected to improve significantly. As of the end of 2024Q1, the company had an unfinished contract amount of 6.2 trillion yuan, five times its revenue in 2023. It has plenty of orders in hand, and undertakes mostly key projects. It is expected that it will be the main investment in additional financial capital. Benefiting from improvements in infrastructure capital from the second quarter, revenue and performance growth is expected to accelerate markedly.

The gross margin of the infrastructure business is basically stable, and net interest rates have declined due to declining profits in the resource sector. The company's comprehensive gross profit margin was 8.6%, down 0.33 pct year on year. Among them, gross margins of infrastructure/design consulting/equipment manufacturing/real estate development/other businesses were -0.01/+0.67/+0.22/-0.26/ -1.98 pct year on year (gross margin of resource utilization -3.8 pct year on year). The cost rate for the period was 4.73%, a year-on-year decrease of 0.01pct. Among them, the sales/management/R&D/finance expenses ratio changed by -0.05/+0.16/ -0.1/-0.03pct respectively, and the overall rate remained stable. Asset (including credit) impairment losses were underestimated by approximately $440 million, which reduced the revenue ratio from 0.41% to 0.25%. The income tax rate was 18.6%, a year-on-year increase of 0.9 pct. Minority shareholders accounted for 6.8% of profit and loss, a year-on-year decrease of 4.34pct. Net profit margin was 2.8%, down 0.07pct year over year. Q1 The company's net operating cash flow was 68.1 billion yuan, an increase of 30 billion yuan over the previous year, mainly due to: 1) centralized payment of project payments, labor payments, and materials before the Spring Festival; 2) due to financial constraints of some project owners, there was a delay in repayment.

Q1 orders declined due to the high base, and there was a significant increase in emerging businesses and overseas orders. The amount of new contracts signed by 2024Q1 was 621.6 billion yuan, down 7%. The main reasons for the decline were: 1) the base for the same period was high (22Q1/23Q1 increased by 84%/10%, respectively) the compound growth rate of new contracts signed by 21Q1-24Q1 reached 24%; 2) affected by capital in the first quarter, infrastructure projects were implemented slowly, and real estate and investment orders fell a lot.

By business, the amount of new contracts signed for Q1 construction was 470.1 billion yuan, accounting for 76%, a year-on-year decrease of 7%; design consulting/equipment manufacturing/characteristic real estate/asset management/resource use/financial trade/emerging business contract amounts were -3%/-11%/-70%/-7%/+5%/+54%, respectively, and orders for emerging businesses (water conservancy, hydropower, clean energy, etc.) grew rapidly. Looking at the subregions, the amount of new contracts signed for domestic and overseas businesses was 5724/49.2 billion yuan respectively, -9%/+23% over the same period last year, and overseas orders maintained a relatively rapid growth rate.

Investment advice: We expect the company's net profit to be 375/408/44 billion yuan, respectively, up 12%/9%/8%, EPS to 1.52/1.65/1.78 yuan respectively. The current stock price corresponds to PE 4.5/4.2/3.9 times, and the latest PB-LF is 0.60 times, maintaining a “buy” rating.

Risk warning: Infrastructure investment falls short of expectations, risk of overseas business operations, risk of impairment of accounts receivable, risk of commodity price fluctuations.