The company's 2023H1 realized operating income of HK $4.716 billion, an increase of 23.91% over the same period last year, a gross profit of HK $675 million, an increase of 26.09% over the same period last year, and a net profit of HK $437 million, an increase of 35.71%.
Overall, the company's performance growth is in line with the "14th five-year Plan" business target (reaching 1 billion yuan in net profit, with a 5-year compound growth rate of 39%). It continues to create high certainty of performance, followed by emerging markets + BIPV layout, and is expected to continue to grow rapidly. Taking into account that the company is still in a period of rapid growth and a high degree of certainty in its performance, combining the comparable corporate PE valuation and the company's historical PB valuation, it gives the target market capitalization HK $7.5 billion, corresponding to the target price of HK $3.30, and maintains a "buy" rating.
The revenue structure has improved and the share of Hong Kong, Macao and the mainland has expanded. In terms of curtain wall engineering, 2023H1's curtain wall project revenue reached HK $3.65 billion, an increase of 25.8% over the same period last year, a gross profit margin of 15.2%, an increase of 1.8pcts over the same period last year, and a segment profit of HK $510 million, an increase of 60.1% over the same period last year. The company maintains the strategy of "expanding Hong Kong and Macao, expanding the mainland, and optimizing overseas". From a regional point of view, 2023H1's market revenue in Hong Kong, Macao and the mainland reached HK $3.46 billion, an increase of 29.4% over the same period last year, while market revenue in North America reached HK $190 million, a decrease of 17.0%.
In terms of general contracting and operation management, both revenues come from Hong Kong, Macao and the mainland market, and the company is gradually diluting its non-core business. Among them, the proportion of general contracting decreases with the rapid growth of the main business (10.9% of revenue is 11.7% for the whole year of 22 years), and the operation remains stable; in the operation and management business, the company's China Shipping Supervision is transformed to project management and consulting, and the overall supply profit and cash flow are still stable, the efficiency of thermoelectricity is improved, and costs and carbon emissions are gradually reduced. 2023H1's general contracting revenue reached HK $520 million, an increase of 68.7% over the same period last year, a gross profit margin of 0.3%, a decrease of 1.3pcts, and a segment profit of HK $1.912 million, a decrease of 50.6% over the same period last year. 2023H1's operating management revenue reached 550 million yuan, a decrease of 8.0% over the same period last year, a gross profit margin of 21.4%, a decrease of 2.3pcts over the same period last year, and a segment profit of HK $85.07 million, a decrease of 19.14% over the same period last year.
The newly signed contracts continue to be prosperous, and the core contracts on hand are growing steadily. Under the high base of Galaxy's fourth phase of large contracts in the same period last year, the company's 2023H1 newly signed contracts remained stable, with a total contract value of HK $6.62 billion, an increase of 10.2% over the same period last year. Hong Kong and Macao still maintained a market-leading business scale, with a total contract value of HK $4.26 billion, and the mainland market was expanded effectively, with the newly signed contract value reaching HK $1.45 billion, an increase of 51.1% over the same period last year.
Contracts in hand in the core business of the company continued to grow, and non-core contracts were gradually digested. Contracts in Hong Kong and Macao reached HK $8.96 billion, an increase of 29.3% over the same period last year, while those in the mainland reached HK $3.51 billion, an increase of 28.7% over the same period last year. Overseas and non-core contracts were reduced by 15.5% to HK $2.84 billion. In addition, taking into account the pre-project tracking and bidding time, we expect the curtain wall project cycle of about 2-3 years, the company's performance also has a high visibility.
Under the guidance of strategy, the company relies on brand advantages to gradually break through large-scale project orders, maintenance and testing or become a new growth pole. The company locates the high-end curtain wall market, and gradually optimizes the business layout in the business process, and benefits from the business increment brought about by the optimized layout. Under the guidance of the policy on Hong Kong and Macao, the sustainability of demand has been verified, and large-scale construction projects have been carried out steadily. in the first half of the year, the company's new bid-winning projects in Hong Kong and Macao include large-scale screen projects such as site An of Hong Kong Kai Tak Acute Hospital, Prince of Wales Hospital, 391 Chai Wan Road, Tai Po Inland lot 243, Ma Wo Road, Tai Po, and so on. In addition, policies such as "Northern Metropolitan area", "Lantau tomorrow", "blueprint for the development of cultural and arts facilities for ten years", "first and second ten-year hospital development plans", and "Macau Expo enterprises sign a new round of operation contracts" are expected to continue to catalyze in the future. Relying on the brand of "far East Curtain Wall", mainland companies continue to cultivate in the fields of new economy enterprises, Hong Kong-funded developers, government public construction and boutique business departments. in the first half of the year, we won the bid for Sun Hung Kai Hangzhou River Huihui, Rakuten, a well-known Korean consortium, and three project orders from Huawei. It is worth noting that the company announced for the first time the active layout of glass curtain wall maintenance and inspection operation business. With the aging of buildings and more stringent safety standards, the demand for inspection, maintenance and renovation of the corresponding owners is increasing day by day. As a high-quality curtain wall brand endorsement, relying on its own technical advantages, the company may give priority to seizing this market.
Looking to the future: emerging markets + BIPV is ready to go. In addition to the Hong Kong, Macao and mainland markets, the company also distributes emerging markets such as the Middle East and BIPV. At present, the company expands the Singapore market with a good business environment and maintains communication with property owners in the Middle East. The implementation of projects in overseas operations, especially in the Middle East, may bring considerable improvement to the company's performance. Take the Saudi "The Line" project as an example, according to the report we have released, "China Construction Industry (00830.HK) Investment value Analysis report-High-end Curtain Wall leaders in Hong Kong and Macao, highly determined Fast growth"
(2023.4.24) it is estimated that if the project is implemented, the total demand for the photovoltaic curtain wall of the project may reach 935.5 billion yuan, considering that the company has completed the world's tallest building Burj Khalifa in Dubai, which has a deep technical reserve in the BIPV project and has many typical well-known projects in the world. It is expected to become a strong competitor for this project.
Risk factors: rising costs of raw materials and labor, rising cost of capital, exchange rate fluctuations, less-than-expected market expansion in the mainland, Hong Kong and Macao, and lower-than-expected landing of overseas projects.
Profit forecast, valuation and rating: the company locates the middle and high-end curtain wall market and puts forward a plan to achieve a net profit of HK $1 billion by 2025 by the beginning of the 14th five-year Plan, with a five-year compound growth rate of 39%. So far, the performance targets for 2021 and 2022 have been met. In terms of business quality, the relative payment terms of the company's Hong Kong and Macao business are better, and the future performance growth of the project has a strong certainty. We predict that the company's net profit from 2023 to 2025 will reach HK $568 million. Comparable companies are Jianghe Group and Yasha shares (previous performance losses are not used as a reference for valuation). We select Jianghe Group's 15.03 times PE valuation in 2023 as the basis (Wind consensus expectation), considering that China Construction Industry focuses on the middle and high-end curtain wall market, with high certainty and fast growth. We believe that we can give the company a valuation of 15 times PE relative to its 2023 results, corresponding to a market capitalization of HK $8.5 billion. In addition, since the company proposed to reduce the scale of business in overseas markets in the "14th five-year Plan" in 2021, the average PB has been 1.80 times. Considering that the company's overseas business is expected to continue to shrink in the future, the scale of business in the mainland, Hong Kong and Macao will continue to improve, and the quality of operation is expected to continue to improve. We think it can give the company a valuation quantile that exceeds the historical center, that is, about 2.5 times PB compared to 2023. Equivalent to 71 per cent of the valuation quantile since 2020, corresponding to a market capitalization of HK $6.7 billion. Combined with PE and PB valuations, we believe that the reasonable market capitalization of the company is about HK $7.5 billion, with a target price of HK $3.30, maintaining a "buy" rating.