1H23's performance met our expectations
The company announced 1H23 results: revenue of HK$55.11 billion, up 2.4% year on year, and net profit of HK$4.85 billion, up 15.1% year on year. The results were in line with our expectations.
In the first half of the year, the company's gross margin increased by 2.2ppt to 15.7%; the sales and management expenses ratio increased by 0.2ppt to 2.3% year on year, and the financial expense ratio increased by 0.1ppt to 2.8%; the profit of joint ventures should account for HK$350 million, an increase of 65.0% year on year. Among them, joint ventures of HK$350 million, a year-on-year increase of 285.3%, joint ventures of HK$170 million, a year-on-year decrease of 22.9%; and net margin increased by 1ppt to 8.8% year on year.
1H23's net operating cash inflow was HK$170 million, an increase over the same period of the previous year of HK$100 million; net investment cash inflow of HK$1.09 billion, a year-on-year decrease of HK$8.0 billion. The net loan ratio decreased by 1.9ppt to 67.5% compared to the end of the previous year. 1H23 paid HK27.5 cents per share, maintaining a 30% dividend ratio.
Development trends
The Hong Kong-Macao public construction plan is driving market boom, and the mainland's cash flow continues to be optimized. In the first half of the year, the company's Hong Kong business continued to benefit from the “Ten-Year Hospital Development Plan”. Newly signed orders increased by 41.1% year-on-year and turnover increased 6.0% year-on-year over the previous year after excluding the epidemic prevention program. We continue to be optimistic about the future implementation of projects related to large-scale public construction projects such as the Northern Metropolitan Area and Tomorrow's Lantau, providing market space for the company's Hong Kong business to continue to grow. In the first half of the year, the mainland business signed new orders and operating income increased by 8.0% and 46.7%, respectively, and the net cash outflow from the mainland business narrowed year on year. We believe that in the future, the company's mainland business is expected to continue to focus on advantageous regions, strictly control project turnover, and continue to drive optimization of mainland business cash flow performance while achieving continuous scale growth.
The share of technology-driven categories increased to 51%, and technologies such as MiC and C-SMART continued to be upgraded. 1H23's technology-driven business signed new orders of HK$49.6 billion, a strong year-on-year increase of 67.9% over the amount of new contracts signed after the epidemic prevention project was proposed last year, and the share increased significantly to 51.1% from 43.6% in the same period last year. In the first half of the year, the company's MiC business application fields and regions continued to expand, expanding markets such as school-type MiC and elevator MiC to markets in Anhui, Shenzhen, and Beijing. The company continues to develop and apply six major construction technologies. We believe that technologies such as MiC and C-SMART smart construction sites are expected to continue to empower project acquisition, improve quality and efficiency, and provide momentum for medium- to long-term continuous growth.
Profit forecasting and valuation
We keep our profit forecast unchanged. It is currently trading at 4.7x/4.2x 2023e/2024e P/E. It maintained an outperforming industry rating and target price of HK$12.3, corresponding to 6.6x/5.9x 2023e/2024e P/E and 41% upside.
risks
The repayment situation for mainland business fell short of expectations, and progress in implementing public construction plans in Hong Kong fell short of expectations.