1H24 results fall short of our expectations

The company announced 1H24 results: achieved revenue of -6.7% to 10.33 billion yuan, net profit to mother of -23% to 0.428 billion yuan, minus non-net profit -48% to 0.236 billion yuan; of these, 2Q24 revenue -2.6% year-on-year to 5.9 billion yuan, net profit to mother -36% to 0.225 billion yuan, net profit to mother was -36% to 0.225 billion yuan, less than our expectations, mainly R&D Expenses exceeded expectations.

Increased competition and pressure on core profit: 1H24's steel structure output was 2.106 million tons, +0.12% year on year; ton sales price (output caliber) -300 yuan to 4,743 yuan year on year; ton gross profit +8 yuan to 418 yuan year on year; ton four expenses were 266 yuan, year on year +69 yuan (of which ton R&D expenses were +60 yuan year on year); tons of other gross profit (gross profit of other revenue) were 107 yuan, -43 yuan; the net profit per ton and ton profit decreased by 60 yuan and 112 yuan, respectively. 97 yuan. Looking at the 2Q alone, gross profit per ton of steel structures (full caliber; total gross profit/production) was -66 yuan to 536 yuan; the cost of the four tons was +50 yuan to 312 yuan; the net profit per ton and core profit per ton were 189 yuan and 125 yuan respectively, respectively, -107 yuan and -133 yuan.

New contracts have been signed steadily, and the unit price has declined: the amount of new contracts signed by 1H24 was 14.3 billion yuan, -5% over the same period last year. Single 2Q new contracts were -6% to 7.4 billion yuan, and the contract amount for large projects was +18% to 1.7 billion yuan, corresponding to the processing volume of large projects +37% to 0.32 million tons (but the unit processing fee was -14% year over year).

The capital chain is tight: the company's net operating cash outflow in the first half of the year was 45.16 million yuan, a significant decrease from the net inflow of 0.654 billion yuan in the same period last year. We believe it was mainly due to an increase in payments to suppliers (1H24 accounts receivable increased by 0.34 billion yuan from the end of the year, inventory increased by 0.26 billion yuan, and accounts payable decreased by 0.32 billion yuan), of which 1H24's revenue ratio was +2.3ppt to 99% year-on-year.

Development trends

Demand pressure is gradually showing, and intelligent transformation is saving energy for the long term. According to the Bureau of Statistics, investment in public facilities with high gross margins in the steel structure sector is 1-7M24 -5% year-on-year, and investment in standardized manufacturing is +9% year-on-year. We believe that in the future, in an environment where manufacturing profits are under pressure and infrastructure capital is tight, pressure on demand for steel structures may gradually be reflected, and competitive pressure will be strong. At the same time, the company has increased intelligent transformation (1H24 R&D expenses +63% compared to the same period), which may have a certain impact on costs in the short term, but in the long term, it will drive the company's scale advantage even more significant (we estimate that labor costs can be saved 40-60 yuan/ton at a 30% replacement rate). We are optimistic that the company's intelligent transformation will take the lead and enjoy cost dividends.

Profit forecasting and valuation

Considering the increase in market pressure and the company's high R&D expenses, we lowered our 24/25 net profit by 24%/29% to 0.98/1.05 billion yuan, and the current stock price corresponding to 2024-25e P/E is 8.2/7.6x. As an industry leader, we maintained an industry performance rating, but lowered the target price by 28% to 14.5 yuan, and the target price corresponding to 2024-25e P/E is 10x/9.5x, implying 24% upward space.

risks

Demand falls short of expectations; steel prices fluctuate greatly; intelligent transformation falls short of expectations.