Event: on August 22, the company released its 2023 half-yearly report.

2023H1 performance orders increased significantly. The company's 2023H1 realized operating income of 7.794 billion yuan, an increase of 64.83% over the same period last year, and its net profit was 299 million yuan, an increase of 29.55% over the same period last year. The net profit was 239 million yuan, an increase of 42.85% over the same period last year. Of this total, the operating income of construction projects was 7.524 billion yuan, up 60.76% over the same period last year; the sales revenue of asphalt concrete and related products was 61 million yuan, up 257.74% over the same period last year; and the operating income of environmental protection business was 2.6918 million yuan, up 2.51% over the same period last year. The business income of the combined design, survey and consulting business was increased by 182 million yuan. The increase in operating income is mainly due to the low base caused by the epidemic in Shanghai last year, the workload of construction projects is more than that of the same period last year and the new merger of Pudong Design Institute. Focusing on the integrated development strategy of the Pudong New area and the Yangtze River Delta in 2023, the newly signed contract value of the project continued to grow strongly. In the first half of 2023, the newly signed contract value of the company totaled 15.585 billion yuan, an increase of 102.12% over the same period last year.

Gross profit margin increased slightly, and investment in research and development continued to increase. The company's 2023H1 comprehensive gross profit margin was 6.96%, up 0.88pct from the same period last year. From a sub-industry point of view, the gross profit margin of the design and survey consulting business is higher, reaching 23.37%, and the sales gross profit margin of asphalt concrete and related products is 19.32%, an increase of 10.55pct over the same period last year, mainly due to the increase in the unit price of asphalt concrete and related products. The increase in sales expenses of 2023H1 Company is mainly used for the TOP core joint project of Zouping Road. Management expenses increased by 66.83% over the same period last year, mainly due to the increase in the scale of the business in the current period, the corresponding increase in personnel, and the increase in staff and workers' salary, depreciation and amortization after the merger of Pudong Design Institute in the second half of 2022.

Financial expenses decreased by 48.01% over the same period last year, mainly due to an increase in interest income and a decrease in interest expenses. Research and development expenses increased by 96.40% over the same period last year, mainly due to the research and application of subsidiaries on the key technical system of rapid construction of urban viaducts, the research on key technologies for improving the quality of housing and water in Heqing land, and the research and application of assembly construction technology of indemnificatory apartment project in Tongfu Village of Beicai Town and Dongming Village of Sanlin Town. Increased investment in research and development.

Based on the radiation of the Yangtze River Delta in Pudong New area, the transformation of villages in the city will benefit. On July 21, the executive meeting of the State Council proposed to actively and steadily implement the transformation of urban villages in super-large cities. Shanghai plans to launch 30 new urban village renovation projects from 2023 to 2025, 10 per year, covering an area of no less than 4 million square meters, with a broad scope for fixed assets investment. As a local state-owned enterprise in Shanghai, the company has increased investment in the Yangtze River Delta region based on the Pudong New area, with a cumulative investment scale of more than 30 billion yuan. in terms of engineering construction, we have completed the construction of a series of major public infrastructure projects in the Yangtze River Delta, such as Shanghai Pudong New area, Wuxi, Changzhou, Zhuji and other major public infrastructure projects, such as high-grade highways, parking lots, waste incineration plants, indemnificatory apartment and so on. It is expected to benefit from the market opportunities brought about by the transformation of villages in the city.

Investment suggestion: the company expects revenue of 19.735 billion yuan and 23.838 billion yuan in 2023 and 2024 respectively, an increase of 40.12% and 20.79% respectively, and a net profit of 713 million yuan and 797 million yuan respectively, an increase of 25.67% and 11.76% respectively. The PE of the corresponding stock price is 9.57 times and 8.33 times respectively, maintaining the "recommended" rating.

Risk hint: the risk that the landing of the order is not as expected; the risk of the recovery of accounts receivable; the risk that the transformation of the village in the city is not as expected.