The decline in Q3 performance narrowed slightly, and overall performance was in line with expectations. 2024Q1-3 achieved operating income of 425.7 billion, an increase of 1.2% (after adjustment for the same period); realized net profit of 8.8 billion yuan, a decrease of 7.2%; net profit after deducting non-return to mother decreased by 14%, which was slightly larger than the main result of confirming non-current profit and loss of about 0.764 billion in the first three quarters, including profit and loss from disposal of illiquid assets and recovered from calculated impairment values (only 0.2 billion in the same period last year). View by quarter:

Q1/Q2/Q3 respectively achieved operating income of 140.2/144.8/140.7 billion yuan, or +5%/-2%/+1%; realized net profit to mother of 3/3.3/2.5 billion yuan, +0.8%/-12%/-9% year-on-year. The decline in performance has narrowed but the overall performance is still under pressure. The main reasons are expected: 1) Affected by factors such as tight local government funding this year, the physical infrastructure workload performance is weak. In particular, the slowdown in traditional infrastructure construction has greatly dragged down the company's revenue. 2) The tight project funding chain has led to an increase in demand for debt financing such as corporate loans, etc., and financial rates have increased a lot. At the same time, the scale of impairment accrual has expanded due to the slowdown in project repayment. Subsequent central government policies such as leveraging and debt conversion are expected to be gradually implemented, and infrastructure funding is expected to improve steadily, driving the company's performance to stabilize.

Gross margin is relatively stable, and net profit margins are under pressure due to higher financial rates and increased depreciation. 2024Q1-3's gross profit margin was 12.4%, up 0.1 pct from the previous year. It is expected to be mainly driven by improved profit from power investment and operation; the Q3 gross profit margin was 12.7%, a slight decrease of 0.2 pct. The cost ratio for the Q1-3 period was 8.36%, up 0.31 pct year on year (+0.5 pct per quarter in Q3). Among them, the sales/management/R&D/finance ratio increased 0.02/0.03/0.12/0.14 pct year over year (Q3 single quarter remained flat /-0.06/+0.17/+0.4 pct), and the financial expense ratio increased a lot. It is expected that loan demand will increase mainly due to tight project funding. Interest expenses for the single quarter will increase by about 0.3 billion yuan and interest income decreased by 0.2 billion yuan over the same period. Asset (including credit) impairment losses were accrued 0.7 billion more than during the same period, and 0.3 billion more were accrued in a single quarter in Q3. Investment income was basically the same as in the same period last year. The income tax rate decreased by 1.2 pct year over year. Net interest rates for Q1-3/Q3 were 2.07%/1.75%, respectively, down 0.19pct year over year. Q1-3 Net operating cash flow outflow was 46.9 billion, 11 billion more than in the same period last year, and repayment pressure is expected to be strong; net cash flow from investment was 42.1 billion, down 19.9 billion from the same period; total outflow from operation+investment was 89 billion, which was 8.9 billion narrower than the same period, and overall cash flow improved slightly.

The energy and electricity contract boom continues, and overseas business performance is relatively good. 2024Q1-3 signed a new contract amount of 861.1 billion yuan, an increase of 5.4% over the same period, maintaining steady growth; Q1/Q2/Q3 signed 331.1/317.8/212.2 billion yuan in a single quarter, +2.7%/+13%/-0.5% year-on-year. By business: Q1-3 energy, electricity, water resources and environment/municipal infrastructure/other businesses (gravel aggregates, etc.) signed 5184/112/198.5/32.3 billion, respectively, +20%/-10%/-17%/+65%; Q3 signed 1342/22.1/52.8/3.2 billion yuan respectively in a single quarter, +17%/-2%/-25%/-36%. Infrastructure demand is under pressure, and the main energy and power industry is still booming. Looking at the subregions: In Q1-3, new domestic and overseas contracts were signed at 685.1/176 billion yuan respectively, an increase of 3%/15% over the same period.

Investment advice: We expect the company's net profit to be 12.6/13.3/14.2 billion yuan in 2024-2026, respectively, -3%/+6%/+7%, EPS of 0.73/0.77/0.83 yuan, respectively. The current stock price corresponds to PE 7.5/7.0/6.6 times, respectively, maintaining a “buy” rating.

Risk warning: Demand for new energy construction falls short of expectations, infrastructure investment falls short of expectations, risk of asset impairment, overseas business risk, etc.