Incident: The company released its 2022 annual report.

The performance was in line with expectations, and the signing of new contracts was under pressure. The company achieved revenue of 8.040 billion yuan in 2022, a year-on-year decrease of 11.21%, net profit of 385 million yuan, an increase of 17.62% over the previous year, and net profit of 261 million yuan after deduction, an increase of 2.29% over the previous year. The performance was in line with expectations. Among them, due to the complex and changing external environment and the domestic economic downturn, the engineering contracting business achieved revenue of 2,638 billion yuan, a year-on-year decrease of 28.36%. In 2022, the company signed a new contract amount of 11.935 billion yuan, a year-on-year decrease of 5.44%. Among them, design consulting contracts amounted to 7.364 billion yuan, a year-on-year decrease of 3.46%; engineering contracts amounted to 4,571 billion yuan, a year-on-year decrease of 8.47%. Domestic market development was clearly influenced by the external environment. New foreign contracts were signed at 4,388 billion yuan, a year-on-year decrease of 20.96%.

There has been an increase in gross margin and a sharp drop in financial expenses. The company's consolidated gross margin in 2022 was 23.81%, up 3.46 pct from the same period last year. On the one hand, the gross margin of all business segments increased over the same period of the previous year. The gross margin of the engineering design business was 31.03%, an increase of 1.47 pct over the previous year, the gross margin of the engineering contracting business was 8.02%, an increase of 1.48 pct over the previous year, the gross margin of the engineering technology management and survey business was 35.26%, an increase of 3.25pct over the previous year; on the other hand, the gross margin of the information technology services and sales business was 19.25%, an increase of 3.02pct over the same period last year; on the other hand, The share of engineering design consulting business with high gross margin in 2022 in main business revenue increased from 59% the previous year to 67%. Expenses were generally stable during the company period in 2022, and financial expenses changed greatly, with a year-on-year decrease of 81.45%, mainly due to the company's centralized cash management, reduction of loans, and issuance of ultra-short financing notes with low interest rates.

Focus on the construction of major local projects to accelerate the pace of digital transformation. In 2022, the company took advantage of its location to strengthen the coordination and management of major local projects and focused projects in Shanghai, focusing on the overall promotion of projects such as the World Expo Cultural Park, the Sanlin Riverside Wedge Green Area, and the North Bund Core Area. It has participated in 67 major projects in Shanghai, 22 of which have been completed; the total number of medical insurance projects involved has reached 217, with a contract amount exceeding 150 million, including 209 in Shanghai and 8 overseas. The total number of beds involved has reached 444,265. In terms of engineering digitalization, the subsidiary Huajian Digital Innovation has developed the autonomous and controllable Arctron Arcos series products to version 2.0. Based on Arctron Arcos, it has developed the building-grade digital dock product Building ArcBase and the city-level digital dock product CityArcBase, and continues to advance the “digital twin” and “smart empowerment” business segments with its own core products. In the digital twin sector, based on technologies such as BIM and CIM, we are committed to the construction of urban digital twins, and have been applied in depth in projects such as the Pudong Airport T3 terminal, Taiyuan Airport renovation and expansion project, and Jinqiao Group's CIM platform.

Investment advice: The company is the first state-owned design consulting enterprise to set up a design group and go public in China. Digital transformation is expected to open up new growth space for the company.

The company's revenue in 2023 is estimated to be 9.548 billion yuan, an increase of 18.76% over the previous year, net profit of 464 million yuan, an increase of 20.43% over the previous year, EPS is 0.48 yuan/share, and PE corresponding to the current stock price is 11.24 times, maintaining the “recommended” rating.

Risk warning: the risk of orders falling short of expectations; the risk of digital transformation falling short of expectations.