In-hand orders are plentiful, and order growth is expected to be impressive in the second half of the year. The company signed new orders for PC components in the first half of the year amounting to 2,373 million yuan, an increase of 57% over the previous year. Among them, Q1 placed 1,162 billion yuan of new orders, an increase of 273.3% over the previous year, mainly due to the low base affected by the epidemic in the first quarter of last year; new orders in Q2 were 1,211 billion yuan, which was basically the same as the previous year. Mainly because prices of major raw materials such as steel rose rapidly in the first half of the year, and at the same time, the industry faced further downward pressure on market prices. The company optimized orders in the second quarter taking into account price factors, payment terms, etc. With the implementation of centralized land supply in some pilot cities and the stabilization of raw material prices, it is expected that the increase in company orders will reach a large increase in the second half of the year. Currently, the company's on-hand orders for PC components are 6.301 billion yuan, an increase of 51.8% over the previous year. The revenue ratio for on-hand orders is 2.51, which is quite full.

Revenue grew steadily, and gross margin declined significantly. The company's revenue in the first half of the year was 1.36 billion yuan, an increase of 19.6% over the previous year.

Among them, PC component manufacturing revenue was 1,139 million yuan, up 12.4% year on year, PC component sales were 457,000 square meters, up 25.5% year on year. Revenue was lower than the sales growth rate. The decline in PC market prices was mainly due to fierce competition in the industry. The average price of the company's PC components in the first half of the year was 2,492 yuan/square meter, a year-on-year decrease of 291 yuan/square meter (YOY -10.5%); PC equipment revenue was 221 million yuan, a sharp increase of 306.6% over the previous year, mainly because joint factories affected by the epidemic last year completed equipment installation and acceptance in this phase. We think so Business growth is not sustainable. The gross margin for the first half of the year was 26.1%, down 3.1 percentage points from the previous year. Among them, the gross margin of PC component manufacturing decreased to 23.8% from 29.1% in the same period last year, mainly due to the decline in PC component sales prices. The average production cost of PC components in the first half of the year was 1,899 yuan/square meter, a year-on-year decrease of 74 yuan/square meter (yoy -3.8%). We believe that in the context of rising raw materials, PC component costs can still decline, mainly due to the company's scale advantage and increased capacity utilization.

Expense rates declined during the period, and net profit turned a year-on-year loss into a profit. The company's fee rate for the first half of the year was 25.51%, a decrease of 2.88 percentage points compared with the same caliber. Among them, the sales expense ratio was 4.85%, an increase of 0.32 percentage points compared to the same caliber; the management expense ratio was 11.32%, down 2.86 percentage points compared to the same caliber, mainly due to a decrease in bad debt provisions; the financial expense ratio was 5.15%, up 0.49 percentage points from the previous year, mainly due to increased exchange losses; and the R&D expenses ratio was 4.19%, down 0.83 percentage points compared to the same caliber, mainly due to a sharp increase in capitalization of R&D expenses.

The first half of the year accounted for -8,613 million yuan in profit and loss of associated companies, a decrease of 63.6% over the previous year. The main reason was that business conditions continued to improve with the gradual expansion of the joint company's business; the revenue that lost significant influence on the joint company in the first half of the year was only 306.23 million yuan, an increase of 74% over the previous year. It is expected that this revenue will not increase much in the future. Taken together, the company's net profit was 47,165 million yuan, and the loss for the same period last year was 21.757 million yuan. We believe that the company's main business has entered a normal operating period. The second half of the year will enter the peak season in the industry, and performance is expected to grow further.

Operating cash flow has improved dramatically, and outbound development has helped scale growth. The company's net operating cash flow in the first half of the year was 327 million yuan, compared with an outflow of 1.94 million yuan in the same period last year. The total number of accounts receivable turnover days went from 392 days in the same period last year to 341 days. Among them, the number of accounts receivable turnover days for the PC component manufacturing business rose from 307 days in the same period last year to 361 days. Mainly due to the implementation of centralized land supply in some cities in the first half of the year, large capital collection from major developer customers affected the company's repayments. It is expected that there will be a marked improvement in the second half of the year. In addition, the company continues to promote the Yuanda Meizai Home business and plans to launch a 6-story bolt-connected fully assembled construction product in the second half of the year; in early March, the Yuanda Rubik's Cube (BOX modular building) series of space products, using silicon-based composites, naturally avoids the risk of price fluctuations of raw materials such as steel in traditional products. At the same time, Yuanda's joint plan is steadily landing and building plants across the country. The company may continue to hold excellent joint plants in the future, and its epitaxial revenue is expected to grow rapidly.

Investment advice. At present, the company has formed three major business segments: PC-prefabricated high-rise buildings, Yuanda Beautiful Homes, and Yuanda Rubik's Cube, and epitaxial development is expected to increase performance. Since the decline in gross margin of PC components in the first half of the year slightly exceeded expectations, we lowered our 2021 profit forecast. In the future, gross margin is expected to improve as raw material prices stabilize, capacity utilization increases, and market regulation is further regulated. We adjusted the 2021-2023 EPS to HK$1.16, 1.76, and 2.45 HKD/share. The corresponding PE was 10.5, 6.9, 4.9 times, and maintained the “Highly Recommended - A” rating.

Risk warning: Industry competition intensifies, raw material prices fluctuate greatly, and new business advancement falls short of expectations.