Q2 results declined due to a slowdown in revenue recognition and an increase in the share of rigid expenses. 2024H1 achieved revenue of 357.4 billion, a decrease of 2.5%; achieved net profit of 11.4 billion yuan, a decrease of 0.6%, and a 3% decrease after deducting non-performance. The growth rate was in line with expectations. By quarter: Q1/Q2 achieved revenue of 176.9/180.5 billion, +0.2%/-5%, respectively; realized net profit of 6.1/5.3 billion, +10%/-11% year over year. Q2 performance declined. Revenue confirmation is expected to slow down mainly due to tight infrastructure funding, while the share of rigid expenses increased by 1.3 pct per quarter. By business: infrastructure construction/infrastructure design/dredging/other businesses achieved revenue of 3181/17.3/26.9/11.2 billion, respectively, -3%/-10%/+3%/+13% compared to the same period last year. Looking at regions: 2024H1 achieved revenue of 287.8/69.6 billion yuan domestic/overseas respectively, -7%/+24% over the same period last year, and maintained relatively rapid growth in overseas business.

Gross margins have improved, and cash outflows from investments have narrowed markedly. 2024H1's comprehensive gross profit margin was 11.65%, up 0.9 pct year on year. Among them, the gross margin of infrastructure construction/infrastructure design/dredging/other businesses increased by 0.6/1.5/1.4/4.2 pct, respectively. The gross margin of all businesses increased. The improvement in design profit was mainly due to the continuous decline in the share of the EPC business, and the gross margin of other businesses increased a lot, mainly due to the restructuring and merger of Qilianshan Cement. The cost ratio for the H1 period was 5.7%, up 0.8 pct year on year (Q2 increased 1.3 pct in a single quarter). Among them, sales/management/R&D/finance ratio increased by 0.13/0.06/0.19/0.4 pct year on year (Q2 single quarter increased 0.13/0.04/0.56/0.52 pct year on year, respectively). Finance and R&D rates increased a lot, mainly due to a slowdown in revenue, rigid interest, and an increase in R&D investment. The share of H1 minority shareholders' profit and loss increased 0.6 pct year over year. Net profit margin to mother was 3.2%, up 0.05pct year over year. H1's net operating cash flow outflow was 74.2 billion, an increase of 24.8 billion over the previous year, which is expected to be mainly affected by tight infrastructure capital; the net cash flow from investment was 15.6 billion billion, narrower than the same period, by 17.3 billion yuan, and the total cash flow from operation+investment increased 7.5 billion yuan year over year.

High growth in municipal and overseas business has driven steady growth in orders. 2024H1 signed a new contract amount of 960.9 billion yuan, an increase of 8.4%; Q2 signed a new contract amount of 453.6 billion yuan in a single quarter, an increase of 5.8%, maintaining steady growth. By business:

The infrastructure construction business signed a new contract amount of 863.4 billion, an increase of 9.4%. Among them, port/road/railway/municipal engineering orders increased by 5%/-32%/-33%/22%/44%, respectively, and railway and highway signing pressure was high, which is expected mainly due to weak overall industry demand in the first half of the year; urban construction orders grew rapidly, mainly housing construction and municipal projects, which increased 53%/48% year on year; overseas business remained high. Infrastructure design/dredging/other businesses each signed new contracts worth 32.7/59.7/5.2 billion, +22%/-4%/-39% compared to the same period last year. Each business confirmed 60.8 billion dollars in infrastructure and other investment contracts according to the stock ratio, down 49% from the same period, and the scale continued to shrink. As of the end of 24H1, the company's outstanding contract amount was 3536.2 billion yuan, 4.7 times the 2023 revenue, and there were plenty of orders in hand.

The mid-term dividend plan was announced, with a dividend rate of 20% and an expected dividend rate of 3.5% for 24 years. According to the 2024 mid-term dividend plan announcement, the company plans to distribute a cash dividend of 0.14 yuan (tax included) per share, totaling 2.28 billion in cash dividends, with a dividend rate of 20%, which is the same as for the full year of 2023. For the first time since the company went public, an interim dividend was paid to further optimize shareholder returns. Assuming a dividend rate of 20% for the full year of 2024, the corresponding dividend rate is about 3.5%.

Investment advice: We expect the company's net profit to be 24/24.9/25.7 billion yuan in 2024-2026, up 0.9%/3.8%/2.9% year-on-year, EPS 1.48/1.53/1.58 yuan respectively. The current stock price corresponds to PE 5.7/5.5/5.3 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.