Horizon Construction Development Limited's (the "Company") 1H2024 revenue and profit were below expectations. The Company's revenue in 1H2024 was RMB4.87 billion, an increase of 15.8% YoY, below our expectations. Gross profit margin declined to 32.0% (compared to 34.1% in 1H2023), well below our expectations. Net profit was RMB268 million, an increase of 13.1% YoY, slightly below our expectations. Revenue and gross profit missed expectations primarily due to a decline in the operating lease services segment, with revenue for the segment decreasing 24.3% YoY and gross profit margin for the segment declining to 37.1% (compared to 39.5% in 1H2023). The Company attributes this decline in revenue and gross profit to "market price fluctuation of certain product lines". However, the Company's net profit margin only decreased by 0.1 ppt due to its finance cost ratio decreasing to 7.8% (compared to 10.8% in 1H2023). We will lower our profit forecasts and target price in our next company report to reflect the cumulative effects of these changes.

The Company maintained strong growth in its engineering and technical services segment and asset management services segment. Revenue for the segments increased to RMB1.95 billion and RMB1.03 billion for the period, representing YoY growth of 70.6% and 84.1%, respectively. The engineering and technical services segment grew due to the Company's active expansion of the business scale and the expansion of its neo-formwork system business. Its technical services segment served more than 2,630 engineering projects, including important projects such as Macau Taipa Terminal, Welcome National Backbone Cold Chain Logistics Base and Maojia Village Reservoir Steel Cofferdam. The asset management services segment grew due to an increase in business partners. Of the 204,800 aerial work platforms operated and managed by the Company, 72,635 aerial work platforms were entrusted to the Company by outside equipment owners.

The Company's overseas business is showing signs of significant expansion. In the first half of 2024, the Company achieved overseas revenue of approximately RMB73 million, representing an increase of 62% YoY. The Company's management indicated that the current stage of overseas expansion primarily exists to learn more about local markets, with profitability being a secondary concern. The number of service stations overseas increased to 35 (compared to 4 in 1H2023), a pace far exceeding the increase in revenue.

The Company's capex amounted to RMB4.37 billion, representing an increase of 364.7%. The increase in capital expenditure was due to the Company: 1) increasing the procurement scale of its aerial work platform to maintain the scale growth of its own assets and to further consolidate market share, and; 2) increasing the number of SKUs within product lines such as special aerial work equipment, material handling equipment, small lifting equipment and mining equipment. The Company has indicated that its long-term target for overseas capex would be 30% of its total capex.