The 22-year performance was under pressure, and the pace of commercial transformation accelerated

The company released its 22nd annual report, achieving annual revenue of 12.064 billion yuan, +6.89% year on year, achieving net profit of 291 million yuan, -41.03% year on year, net profit of 184 million yuan after deducting non-return mother's net profit, and -60.97% year-on-year, profit was clearly under pressure due to revenue growth. We believe that this was mainly due to a clear decline in gross margin compounded by impairment losses of 122 million yuan over the same period last year. Looking at a single quarter, the 22Q4 company achieved revenue/net profit of 3338/ -86 million yuan, which was +13.93%/-178% year-on-year respectively. Looking ahead to '23, we believe that the company will actively promote the innovation and transformation of its business model and business model, from specialized subcontracting of steel structures to EPC general contracting. Subsequent BIPV is also expected to contribute new growth.

General engineering contracting revenue soared, and the chemical fiber business dragged down profits

By business, in '22, the company's general engineering contracting/steel structure subcontracting/chemical fiber business achieved revenue of 31.0/60.7/2.67 billion yuan respectively, +66.5%/+0.2%/-13.6%, respectively. The gross margin was 14.1%/15.5%/-0.4%, respectively, and -0.6/+0.3/-6.8pct respectively. The engineering general contracting business maintained a high growth trend, while the chemical fiber business maintained a high growth trend under the influence of declining industry sentiment, a sharp decline in domestic and foreign demand, and rising raw material costs. In terms of new orders, the total amount of new contracts signed and won in the company's construction sector reached 18.721 billion yuan in '22, +0.72% over the same period, which is about twice the revenue scale of the construction sector during the same period. Abundant orders on hand are expected to support subsequent revenue growth.

There is plenty of room for improvement in both profitability and cash flow

The company's overall gross margin in '22 was 12.0%, -1.31pct compared to the previous year. On the one hand, the gross margin of the chemical fiber business declined significantly, which dragged down the overall gross profit margin; on the other hand, customers in the steel structure business were under high pressure to pay short-term capital. At the same time, insufficient transportation capacity and personnel mobility also affected the company's project development and reduced profitability. The company's expenses ratio for the period was 7.28%, +0.19pct over the previous year. Among them, the sales/management/R&D/financial expenses ratio was 0.28%/2.64%/3.81%/0.55%, respectively, and -0.04/+0.24/-0.23pct respectively. The company's asset and credit impairment losses in '22 totaled 258 million yuan, an increase of 122 million yuan over the previous year. The net interest rate was -1.95pct to 2.44% year on year under comprehensive influence. Net CFO amount - 1.17 billion yuan, year over year - 730 million yuan, payout ratio was +0.25pct to 88.51% year on year, and payout ratio was +7.04pct to 97.9% year on year.

It is expected that 23 will usher in marginal improvement and maintain the “buy” rating

We believe that the company has plenty of orders in hand. The main steel structure business is expected to fully benefit from the increase in the penetration rate of prefabricated buildings in the 14th Five-Year Plan, and that it has actively entered the BIPV market through equity cooperation and independent establishment of subsidiaries, which is expected to create a second growth curve. Considering that the company's chemical fiber business in '22 was clearly under pressure, which dragged down profits, subsequent cost pressure was high, the company's net profit attributable to the mother in 23-25 was lowered to 5.0/61/75 billion yuan (value before 23-24 was 62/750 million yuan) to maintain the “buy” rating.

Risk warning: The impact of the continued rise in steel prices on profits exceeded expectations; profit fluctuations in the chemical fiber business exceeded expectations; and the progress of the BIPV business fell short of expectations.