Incident: The company released the first quarter report of 2023. During the reporting period, the company achieved operating income of 16.165 million yuan, an increase of 11.25%; Guimu's net profit of 348 million yuan, an increase of 11.35% over the previous year; net profit after deduction of 372 million yuan, an increase of 28.79% over the previous year; and basic earnings per share of 0.20 yuan, an increase of 11.11% over the previous year.

The revenue growth rate is steady, and the order structure continues to be optimized. The company achieved revenue of 16.165 billion yuan in Q1 2023, an increase of 11.25% over the previous year, and maintained steady revenue growth.

In terms of orders, the company has fully benefited from the country's steady growth policy, and new orders have maintained a relatively rapid growth trend. The total number of new orders signed by the company in the first quarter of 2023 was 38.452 billion yuan, an increase of 16.56% over the previous year. On the basis of the 85.13% increase in new orders signed in Q1 2022, the amount of new orders signed reached 2.38 times the revenue of 2023Q1. It is expected that it will continue to help release the company's performance in the future as construction of projects begins one after another. In terms of order structure, the company is actively adjusting its business structure. Housing construction orders with low profitability are currently being actively reduced. On the other hand, the company is actively undertaking infrastructure projects such as highway BOT, infrastructure construction PPP, and ABO development projects in Anhui Province. During the period, infrastructure/housing construction projects achieved a new order amount of 263.45/12.107 billion yuan, an increase of 26.31%/-0.19% of total orders, accounting for 68.51%/31.49% of total orders, accounting for 68.51%/31.49% of total orders compared to the same period in 2022, accounting for +5.28%/-4.83% of company orders. The structure is further skewed towards infrastructure business. Among the infrastructure business, the highway and bridge/ municipal engineering business achieved new orders of 105,88/14.764 billion yuan respectively, an increase of -24.03%/149.52% over the previous year.

Profitability remained stable, and operating cash flow improved markedly. In terms of profitability, the company's overall gross margins and net interest rates in Q1 2023 were 10.84%/2.70%, respectively, with a year-on-year change of +0.01/-0.05 pct respectively. The company's profit level remained stable, achieving net profit of 348 million yuan during the period, an increase of 11.35% over the previous year; net profit of the company after deduction was 372 million yuan, an increase of 28.79% over the previous year. In terms of cost rate, the company's expense rate during Q1 2023 was 7.14%, down 0.60 pct from the previous year. Among them, the management/R&D/sales/finance expense ratio was 3.08%/1.22%/0.35%/2.49%, respectively, with year-on-year changes of -0.32/-0.08/+0.06/-0.26 pct respectively. Expenses were properly managed during the period. In terms of cash flow, the net cash flow generated by the company's operating activities during the period was -1,565 million yuan, which was significantly narrower than the net outflow for the same period in 2022. The year-on-year return was 2,513 billion yuan, mainly due to a decrease in the company's net cash outflow from PPP projects. In terms of debt ratio, as of March 31, 2023, the company's balance ratio was 84.47%, a slight increase of 0.75 pct over the same period in 2022.

The prefabricated building industry is rapidly expanding, and green energy projects are being actively explored. In terms of prefabricated construction business, the company closely followed the country's policy direction to promote prefabricated buildings and vigorously developed the prefabricated construction business. Since 2014, it has invested in the construction of prefabricated production bases. By the end of 2022, 6 bases had been built and put into operation, and 1 was under construction, forming a “cross-shaped” prefabricated construction industry base group centered on Hefei and facing the Yangtze River Delta region. According to the company announcement, it is estimated that after the completion of the entire base, the company's PC components, rail transit pipes and bridge steel structures can achieve production capacity of 520,000 square meters, 160,000 square meters, and 130,000 tons respectively. In 2022, the company's prefabricated construction business achieved a total revenue of 1,391 million yuan and a total profit of 61 million yuan. The prefabricated construction business developed rapidly. In terms of hydropower operation business, the company has accumulated nearly 20 years of experience in the hydropower field and already has integrated investment, financing, construction and operation capabilities. By the end of 2022, the company had 7 controlled and operated hydropower plants, all of which had been built to generate electricity, with a total installed capacity of 246,600 kilowatts, an equity installed capacity of 1881,000 kilowatts, and an annual design power generation capacity of about 1 billion KW·h. The hydropower business generated 755 million kilowatts of feed-in electricity, achieved revenue of 158 million yuan, and total profit of 55 million yuan. According to the company announcement, in the future, in response to the country's call for low-carbon environmental protection, the company will actively explore green energy projects such as pumped storage power plants.

Profit forecasting and investment suggestions: High increases in new orders help release performance, business structure optimization helps improve profitability, and gives a “Buy-A” rating. In 2023-2025, the company's revenue is expected to be 96.14 billion yuan, 113.45 billion yuan and 13.47 billion yuan respectively, up 20.0%, 18.0% and 15.00%, respectively; the net profit of the mother is 1.73 billion yuan, 2.10 billion yuan and 2.47 billion yuan respectively, up 25.3%, 21.6% and 17.3% year-on-year respectively; EPS is 1.01 yuan, 1.22 yuan and 1.44 yuan respectively; dynamic PE is 6.2 times, 5.1 times, 4.4 times, and dynamic PB respectively 1.1 times, 0.9 times, 0.8 times, respectively.

The company is a large-scale state-owned construction enterprise belonging to the province. It has fully benefited from the steady growth policy. New orders are growing rapidly, the order structure continues to be optimized, and performance release is expected to accelerate. At the same time, the company is actively laying out green buildings and vigorously developing the prefabricated industry. A “cross-shaped” production capacity layout has basically been formed, and the prefabricated industry is expected to become a new growth point for the company's performance. Furthermore, the company is expected to increase green energy projects by making full use of the advantages of integrated investment, financing, construction and operation of hydropower plants and photovoltaic construction resources. Optimistic about the growth of the company's main business and the flexibility provided by the new industrial layout, it will be given 8.0 times PE in 2023, corresponding to the target price of 8.08 yuan.

Risk warning: policies fall short of expectations, slow execution of orders, risk of project repayment, obstruction of new business development, etc.