Event: The company released its 2023 interim results, achieving revenue of RMB 73.2 billion, up 6% year on year, driven by high-value consulting design and software business; gross profit was 780 million yuan, up 7.4% year on year, gross margin was 10.7%, up 0.2 percentage points year on year, reversing the downward trend. The company strengthened low gross margin project control and strengthened cost control of materials and subcontracts. The cost increase narrowed; the net profit margin was 2.8%, up 0.1 percentage points year on year; the company achieved net profit of 2.4 billion yuan, up 19% year on year, corresponding to net profit margin It was 3.3%; the company's 1H23 accounts receivable were 27.6 billion yuan, an increase of 27% over the previous year. This is because the macro environment has put financial pressure on the company and customers, and the project acceptance, audit and settlement cycle has been extended.
Two-wheel drive revenue growth in the operator and non-operator markets: domestic telecom operator revenue was 40 billion yuan, up 7.5% year on year, accounting for 54.7% of company revenue. Among them, ACO business maintained a good growth trend. Among them, software development and system support business revenue increased 31.5% year on year; domestic non-operator customer acquisition market revenue was 31.6 billion yuan, up 3.6% year on year, of which new contracts were signed 43.2 billion yuan, up 7.6% year on year, and new contracts signed from strategic emerging industries exceeded 20%; while overseas market revenue was 160 million yuan, up 1.2% year on year ; The company adheres to the “CAPEX+OPEX+ Smart Application” development strategy, responds positively to changes in telecom operators' demand for data centers and industrial digitalization, and enhances delivery capabilities throughout the process from planning consultation to general contracting and integration, contributing significantly to the company's revenue growth.
Focusing on strategic emerging industries, TIS and ACO businesses are developing well: thanks to the rapid growth of the digital infrastructure business, the company achieved revenue of 37.7 billion yuan, an increase of 7.5% over the previous year, accounting for 51.5% of revenue, which is the first driving force for the company's revenue growth; the 1H23 ACO business achieved revenue of 13.8 billion yuan, an increase of 8.6% over the previous year. In the first half of the year, the company focused on strategic emerging industries such as digital infrastructure, smart cities, and green and low carbon. The amount of new contracts signed increased by more than 30%, accounting for more than 27% of the total amount of new contracts signed, helping TIS business development. We expect that in the second half of the year, the construction of data centers for operator and non-operator markets and the layout of operator AI models to accelerate investment in fields such as computing networks will continue to drive steady growth in TIS business and ACO business.
Profit forecast, valuation and rating: Considering the company's effective cost control, the gross margin level reversed the downward trend, raised the 23-24 return net profit forecast by 6%/9% to 3,01/4359 billion yuan, and added the 25-year return net profit forecast of 4.837 billion yuan, an increase of 16%/12%/11% year-on-year, respectively. Considering that operator CapEx investment or will decline in the latter stages of the 5G era, the company's growth may be affected, maintain the “increase in holdings” rating, and maintain the target price of 4.5 HKD (corresponding to 7/7 times PE in 23/24).
Risk warning: 5G construction is slowing down; operator business gross margin pressure is increasing; non-operator business is slowing down.