Tongguan Mining Construction (920019.BJ) reported a 22.46% year-on-year revenue increase in the first half of this year, yet the overall quality of its operations has notably deteriorated, with net profit attributable to shareholders growing less than 5%. The company's first-quarter net profit reversed direction, and the H1 earnings growth was mainly driven by the second-quarter performance.

Tongguan Mining Construction's earnings quality has deteriorated sharply, with operating cash flow plummeting 98.11% in H1 to less than 0.91 million yuan. Simultaneously, risks on the asset side continue to accumulate, with accounts receivable and contract assets reaching elevated levels, accounting for roughly 40% of total assets, making collection risk a pressing concern. The overseas business, which contributes nearly 60% of revenue, finds itself in a situation where revenue rises but profits fall, with gross margins steadily declining. Combined with exchange losses and the suspension of the Mirador Copper Mine Phase II project, the stability risks of Tongguan Mining Construction's overseas operations are becoming increasingly pronounced.

Earnings Growth Salvaged by Q2, Receivables and Contract Assets at Elevated Levels

In H1 of this year, Tongguan Mining Construction achieved revenue of 870 million yuan, up 22.46% year-on-year, with net profit attributable to shareholders reaching 46.713 million yuan, an increase of 4.48%. After excluding non-recurring items, net profit was 47.0627 million yuan, up 5.48% year-on-year. Profit growth lags significantly behind revenue growth, indicating that scale expansion has not translated into corresponding earnings realization.

Breaking down by quarter, Tongguan Mining Construction's Q1 revenue and net profit attributable to shareholders were 408 million yuan and 16.7085 million yuan respectively, up 22.77% and down 20.92% year-on-year. In Q2, revenue and net profit attributable to shareholders reached 461 million yuan and 30.0046 million yuan, up 22.19% and 27.24% year-on-year respectively, with H1 earnings growth largely supplemented by the second quarter.

Tongguan Mining Construction is a national high-tech enterprise focused on providing integrated development services including engineering construction, operation management, optimization design, and technology research and development for non-coal mines globally. The company's core businesses comprise mine engineering construction and mining operation management services. In H1, mine engineering construction generated revenue of 719 million yuan, up 27.91% year-on-year, while mining operation management contributed 149 million yuan, up 1.06%. Although the overall gross margin inched up 0.4 percentage points to 13.45%, the net margin, which better reflects core business profitability, declined from 6.29% in the same period of 2025 to 5.37%.

More concerning than lagging profit growth is the near-dry-up of operating cash flow. In H1, net cash flow from operating activities was a mere 908,800 yuan, down 98.11% year-on-year. This means the 46.713 million yuan in net profit generated less than 910,000 yuan in operating cash, translating to a net cash ratio of just 0.02, with a large portion of net profit being "book profits." Tongguan Mining Construction attributed the sharp decline in operating cash flow to a slight year-on-year decrease in cash received from sales of goods and services relative to revenue, coupled with increased employee compensation payments.

During H1, cash received from sales of goods and services totaled 843 million yuan, accounting for 96.92% of revenue, lower than the 99.22% recorded in the same period of 2025. The book value of accounts receivable stood at 539 million yuan, up 12.57% year-on-year, representing approximately 62% of revenue for the period. Contract assets reached 344 million yuan, with the combined total of 883 million yuan accounting for nearly 43% of total assets, making it the most critical risk asset package. The company stated that the high receivables-to-revenue ratio is primarily due to delayed settlement cycles from clients. Receivables primarily arise from time lags between project settlement and collection, quality assurance deposits on construction projects, and delays caused by owners or contracting parties requiring internal approval processes.

The combined book balance of accounts receivable and contract assets from the top five debtors stood at 519 million yuan, representing 51.8% of the total. Komika Simple Co., Ltd. alone accounted for 20.12%, while China Nonferrous Africa Mining Co., Ltd. contributed 10.17%. Should major clients face cash flow strain or settlement delays, Tongguan Mining Construction's already fragile cash flow would suffer a significant blow.

Overseas Market Substantial but Not Strong, Operational Risks Continue to Surface

In H1, Tongguan Mining Construction generated domestic revenue of 353 million yuan, up 33.11% from the same period in 2025, primarily due to accelerated progress on domestic projects such as the Sichuan Anning Iron-Titanium project, which correspondingly increased revenue. The domestic gross margin improved by 3.9 percentage points year-on-year to 14.79%.

In comparison, overseas revenue reached 517 million yuan, up 16.13% year-on-year and accounting for 59.48% of total revenue. However, as the core revenue source, overseas market profitability has been weakening, with its profit level now surpassed by the domestic market. The gross margin declined 1.79 percentage points year-on-year to 12.53%, compared to 14.33% in the same period of 2025.

The contradiction of Tongguan Mining Construction's overseas business being large in proportion yet high in risk has become increasingly prominent this year. In H1, financial expenses surged 524.04% year-on-year to 21.4918 million yuan, primarily driven by exchange rate fluctuations that increased exchange losses to 18.9606 million yuan, further eroding profit margins.

Tongguan Mining Construction's overseas operations are mainly conducted in developing countries rich in mineral resources, including Zambia, the Democratic Republic of Congo, Ecuador, Mongolia, and Kazakhstan. While the company has considerable experience in overseas projects, potential risks remain that overseas operations may not proceed smoothly. Notably, obstacles in the Mirador Copper Mine Phase II project in Ecuador could adversely affect performance. The Phase II project was essentially completed in May 2025. In June of that year, Tongguan Mining Construction signed the "Mirador North Ore Body Open-Pit Mining and Production Stripping Professional Technical Service Annual Contract (2025)" with China Railway 19th Bureau Group, with operations commencing officially on July 1, 2025.

In January of this year, Tongguan Mining Construction announced that given the significant differences between Ecuador's investment and operating environment and that of China, fluctuations in the political situation, and a lack of stability in the legal environment, the formal commissioning timeline for the Mirador Copper Mine Phase II remains uncertain. Based on these circumstances, mining and production stripping operations at the North Ore Body were temporarily suspended, and the "Mirador North Ore Body Open-Pit Mining and Production Stripping Professional Technical Service Annual Contract (2026)" has been deferred. Tongguan Mining Construction anticipates a certain impact on its operating results.

Overseas project disruptions affecting performance are not isolated incidents. As early as 2025, the halt of operations at the Southeast Ore Body of Zambia's Chambishi Copper Mine in H2 led to reduced revenue in Q3 and Q4 of that project, dragging down overall revenue growth and profit performance for the period. This underscores the pain points of Tongguan Mining Construction's overseas business, which is highly susceptible to local environmental factors and exhibits weak operational stability.