Revenue has increased steadily, and performance has been under pressure for a short time

24H1 achieved revenue of 1.564 billion, +9.94% year-on-year, and 0.234 billion and 0.229 billion net profit to mother and net profit, respectively, -5.99% and -17.15%, respectively. Among them, Q2 achieved revenue of 0.75 billion in a single quarter, +1.14% year over year, and 0.122 and 0.14 billion in non-net profit attributable to mother and net income, or -2.67% and -6.86% year-on-year. The pressure on first-half results was mainly due to a decline in gross margin and an increase in asset and credit impairment losses. Considering the uncertainty of local infrastructure investment, we slightly lowered the company's profit forecast. We expect net profit to be 0.51, 0.58, and 0.66 billion yuan (previous values were 0.56, 0.64, 0.72 billion yuan) for 24-26, and approved to give the company 14 times PE over 24 years, with a target price of 12.74 yuan to maintain the “buy” rating.

General contracting revenue achieved relatively rapid growth, and new business expansion accelerated

The 24H1 survey and design/engineering management/general engineering contracting category achieved revenue of 0.83/0.068/0.659 billion yuan respectively, -8.02%/+7.14%/+46.19% year-on-year, respectively. As for the order situation, 24H1 signed a new contract of 1.598 billion yuan, -27.33% year-on-year, and on-hand orders of 8.509 billion yuan, +3.29% year-on-year. By sector, the survey and design/engineering management/general engineering contract amount was 0.997/0.474 billion, with year-on-year changes of -19.07%/+33.68%/-44.56%; in terms of new business development, urban construction business/digital intelligence business/engineering health business signed new contracts of 0.105/0.036/0.143 billion yuan respectively, with a year-on-year change of 0%/+60.28%/+43%, and 0.043 new contracts for water conservancy and water environment business billion yuan. Overall, new orders in new fields were +35.22% compared to the same period last year. In the field of low-altitude economy, the company established the first civil aviation design institute in the province to deeply cultivate the civil aviation consulting service and survey and design market, and is expected to fully benefit from the low-altitude economic layout of Anhui Province.

Revenue from outside the province has grown rapidly, and the infrastructure boom in the province is expected to continue 24H1. Revenue of 1.29 billion yuan was achieved within the province, +11.86% year over year; revenue from outside the province was 0.267 billion yuan, +1.44% year over year. Looking at the subregion, 24H1 signed new orders of 1.352 billion yuan in the provincial market, compared to -30.56%, and 0.246 billion yuan of new orders in the overseas market, or -2.38% compared to the same period last year. In the first half of '24, Anhui Province completed a total investment of 75.39 billion yuan in fixed transportation assets, 53.4% of annual planned tasks, +7.6% over the same period, and a total investment of 44.03/18.65/2.24 billion yuan for highways/ordinary provincial highways/civil aviation airports, an increase of 16.6%/-1.4%/+28.0% year-on-year. In May, the Provincial Transportation Department issued the “Anhui Provincial Highway Network Plan Revision (2022 - 2035)”, which plans to add and adjust 112 routes, net increase the total mileage by 2,322 kilometers, add 16 interprovincial exits for ordinary provincial highways, add 2 cross-river passages for ordinary national and provincial highways and 7 ordinary provincial highways to cross Huai. The infrastructure investment boom in Anhui is expected to continue.

Gross margin is under pressure, and we are optimistic that cash flow will improve throughout the year

24H1's comprehensive gross margin was 34.0%, -2.24pct year on year, Q2 gross margin was 38.81%, year-on-year, +0.17pct; the period expense ratio increased by 0.94 pct to 11.19% year on year, and sales, management, R&D, and finance cost ratios changed by +0.03 pct, -0.71 pct, +1.42 pct, and +0.20 pct year over year, respectively. Asset and credit impairment was 0.094 billion yuan, up 0.044 billion from year on year, and net income from changes in fair value increased by 0.053 billion yuan year over year. Under the combined influence, 24H1 net interest rate was 15.26%, down 2.38 pcts year on year, and Q2 net interest rate in a single quarter was 16.51%, down 0.47 pct year on year. The net CFO of 24H1 was -0.446 billion yuan, with a year-on-year increase of 0.16 billion yuan. The current payout ratio was 75% and 86%, with year-on-year changes of -4.69pct and -2.27pct.

Risk warning: Order execution falls short of expectations; infrastructure investment falls short of expectations; digital intelligence business development falls short of expectations.