The slowdown in order conversion and rate increases put pressure on Q2 results. 2024H1 achieved revenue of 516.1 billion, a decrease of 4.6%; net profit to mother of 11.9 billion yuan, a decrease of 12.8%, and a decrease of 13.5% after deducting non-performance. By quarter: Q1/Q2 achieved revenue of 274.9/241.2 billion, +0.5%/-10%; realized net profit to mother of 6.03/5.88 billion, +2%/-24% year over year. Q2 performance is expected to decline, mainly due to: 1) due to local financial constraints, traditional infrastructure projects such as highways and municipalities progressed slowly, and revenue conversion slowed; 2) the quarterly rate increased 0.8 pct year on year. By business: engineering contracting/ design consulting/ industrial manufacturing/ real estate development/ material logistics and others, respectively, achieved revenue of 4516/80/11.2/31.5/42.2 billion yuan, compared with -7%/-5%/-8%/+47%/-7%, real estate delivery accelerated. Looking at regions: 2024H1 achieved revenue of 485.3/30.8 billion yuan domestic/overseas respectively, -5%/+5% year-on-year, and maintained steady growth in overseas business.

Gross margin continues to improve, and repayment pressure is high. 2024H1's comprehensive gross profit margin was 9.12%, up 0.2 pct year on year, and profitability continued to improve. Among them, gross margin of engineering/design/material logistics increased 0.03/1.7/1.1 pct year on year, respectively; gross margin of industrial manufacturing/real estate development decreased 2.3/0.9 pct year on year, respectively. The cost rate for the H1 period was 4.8%, up 0.4 pct year on year (up 0.8 pct year on year in Q2). Among them, sales/management/R&D/finance expenses rates were -0.04/+0.14/+0.28pct year on year (-0.04/-0.02/+0.4/+0.5pct in Q2, respectively), and the financial rate increased a lot, mainly due to an increase in interest expenses. The share of H1 minority shareholders' profit and loss increased 3.2 pct year over year. Net profit margin to mother was 2.3%, down 0.22pct year over year. H1's net operating cash flow outflow was 81.7 billion, an increase of 62.3 billion over the previous year; the net cash flow outflow from investment was 21 billion, which was 7.4 billion yuan narrower than the same period. The total operating and investment cash flow was 55 billion more than the same period, which is expected to be mainly due to slow repayment of government projects.

Traditional infrastructure orders have declined, and the growth rate of emerging sectors such as mining and water conservancy is impressive. 2024H1 signed a new contract amount of 1100.6 billion yuan, a decrease of 19%; Q2 signed a new contract amount of 549.9 billion yuan in a single quarter, a decrease of 33%. By industry: In the first half of the year, the amount of new contracts signed for infrastructure construction projects such as engineering contracting, investment and operation, and green environmental protection was 943.5 billion, down 19%. Among them, railway/highway/housing/municipal contracts fell 27%/61%/14%/35% year-on-year, and demand in the traditional infrastructure sector was weak; rail transport/mining/water engineering increased by 19%/414%/40% respectively, and the growth rate of the emerging sector was impressive. By business type: Project contracting/investment and operation/green environmental protection signed a new contract amount of 792.9/57.4/93.3 billion, respectively. Compared with the same period, -17%/-58%/+33% over the same period last year, the scale of investment businesses such as PPP continued to shrink. By the end of 2024H1, the company's outstanding contract amount was 7123.1 billion, an increase of 6.48% over the end of the previous year, 6.3 times the revenue for 2023, and there were plenty of orders in hand.

Investment advice: We expect the company's net profit to be 24/25.2/25.8 billion yuan in 2024-2026, respectively, -8%/+5%/+2%, EPS of 1.76/1.86/1.90 yuan, respectively. The current stock price corresponds to PE 4.5/4.2/4.1 times, respectively, maintaining a “buy” rating.

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