Key points of investment

Huajian Group released its semi-annual report for 2023: the company achieved total operating income of 3,514 million yuan, an increase of 22.59% over the previous year; realized net profit of 185 million yuan, an increase of 22.92% over the previous year; realized net profit of 126 million yuan after deducting non-return home net profit of 126 million yuan, an increase of 14.39% over the previous year. Among them, Q2 achieved total operating income of 1,827 billion yuan, an increase of 40.98% over the previous year; net profit from the parent group was 97 million yuan, an increase of 53.32% over the previous year.

The company's total revenue in 2023H1 was 3,514 million yuan, an increase of 22.59% over the previous year. 1) On a quarterly basis, the company achieved total revenue of 1,686 billion yuan and 1,827 billion yuan respectively in 2023Q1 and Q2, respectively, up 7.41% and 40.98% year-on-year respectively. 2) By business, engineering design, engineering contracting, engineering technology management services and surveys, information technology services and sales, and other businesses achieved revenue of $2.114 billion, $1,085 million, $306 million, $0.03 billion, and $0.04 billion, respectively, with year-on-year changes of +14.56%, +52.13%, +3.11%, -3.01%, and -34.84%. Among them, revenue from the engineering contracting business grew rapidly, mainly due to the impact of the epidemic in the same period last year, the project site was basically shut down, and the engineering contracting business was greatly affected, so the base figure was low.

In 2023H1, the company achieved a comprehensive gross profit margin of 22.52%, a year-on-year decrease of 2.45 pct; a net interest rate of 5.83%, an increase of 0.32 pct over the previous year. The decline in gross margin and the increase in net interest rate are mainly due to a decrease in the cost ratio for the period.

By business, by business, gross margins for engineering design, engineering contracting, engineering technology management services and surveys, information technology services and sales, and other businesses were 30.14%, 4.93%, 31.86%, -5.28%, and 70.34%, respectively, with year-on-year changes of -1.63pct, +1.38pct, -1.31pct, -17.64pct, and -3.22pct, respectively. The increase in gross margin of project contracts is mainly due to the weakening impact of the epidemic and the reduction in costs such as personnel management.

The net cash flow generated by the company's 2023H1 operating activities was -657 million yuan, an increase of 343 million yuan over the previous year. Judging from the pay-to-cash ratio, the company's 2023H1 revenue-to-cash ratio was 107.5% and 153.7% respectively. The year-on-year changes were +16.0 pct and -4.3 pct, respectively. The main reason for the improvement in operating cash flow when the revenue ratio increased and the payout ratio declined.

Profit forecast and rating: For the first time, we predict that the company's EPS for 2023-2025 will be 0.46 yuan, 0.51 yuan, and 0.56 yuan, respectively. The PE corresponding to the closing price on August 28 will be 14.1 times, 12.7 times, and 11.6 times, respectively, giving it a “increase in holdings” rating.

Risk warning: macroeconomic downside risk, on-hand orders falling short of expectations, slow progress of construction projects, worsening cash flow conditions, bad debt losses exceeding expectations