Performance continues to be under pressure, and the pace of commercial transformation is accelerating

The company released its mid-year report on 23. 23H1 achieved operating income of 6.537 billion yuan, +8.03% year on year, realized net profit of 222 million yuan, -25.34% year on year, realized net profit of 210 million yuan after deducting non-attributable net profit of -16.31% year on year. Revenue growth and profit were clearly under pressure. We believe that this was mainly due to a marked decline in gross margin, and a year-on-year decline in prices and gross margin in the chemical fiber business sector, which dragged down profits. Looking at a single quarter, 23Q2 achieved revenue/net profit of 3,348/80 million yuan, respectively, +0.7%/-36.53% over the previous year.

We believe that the company is actively promoting innovation and transformation of its business model and business model, and at the same time taking multiple measures to vigorously develop the photovoltaic new energy business. It continues to expand the integrated photovoltaic building market with the “prefabricated +EPC+BIPV” construction model, and is expected to contribute to increased performance in the future.

Steel structure subcontracting revenue is steadily increasing. The chemical fiber business may usher in marginal improvement sub-business. Looking at the 23H1 company's general engineering contracting/steel structure subcontracting/chemical fiber business, respectively, achieved revenue of 12.8/35.6/1.55 billion yuan, year-on-year respectively, -24.63%/+23.47%/+13.04%, gross margin was 11.06%/14.04%/2.07%, year-on-year respectively, and -3.06pct/-0.9pct/-2.27pct. The steel structure subcontracting business maintained rapid growth, and general contracting business revenue and profits were all under pressure. Business gross margin has declined, but with the accelerated recovery of consumption scenarios, downstream demand for chemical fiber picking up, industry inventories have been removed, and single-ton profit has improved month-on-month. From the perspective of new orders, 23H1's construction sector has signed a total of 12.958 billion yuan in new and winning contracts, or -9.9% year-on-year, about 2.7 times the revenue scale of the construction sector during the same period. Abundant orders on hand are expected to support revenue growth. In addition, 23H1 achieved photovoltaic power generation revenue of 29 million yuan, and we expect further expansion in the future to improve overall profitability.

Profitability needs to be improved, and cash flow has improved markedly

23H1's overall gross margin was 10.9%, -1.54 pct year on year. The cost rate for the period was 6.63%, +0.08 pct, of which the sales/management/R&D/financial expense ratio was 0.24%/2.46%/3.19%/0.75%, respectively, and -0.03/-0.37/+0.31/+0.17 pct, 23H1's total asset and credit impairment losses amounted to $0.14 million, with a year-on-year reduction loss of $34 million. Under comprehensive influence, the net interest rate was -1.51 pct to 3.42%. 23H1's net CFO amount was -575 million yuan, a year-on-year decrease of 180 million yuan, a year-on-year decrease of 180 million yuan, a year-on-year revenue ratio of -1.08 pct to 82.01%, and a payout ratio of -8.34 pct to 86.33% year-on-year.

Optimistic about the subsequent bottom reversal and maintaining the “buy” rating

We believe that the company has plenty of orders on hand, that the main steel structure business is expected to fully benefit from the increase in the penetration rate of prefabricated buildings in the 14th Five-Year Plan, that the profitability of the chemical fiber business is expected to improve marginally, and that it has previously actively entered the BIPV market through equity cooperation and independent subsidiaries, which is expected to create a second growth curve. Considering that the gross margin of the company's various businesses was under obvious pressure in the first half of the year, we lowered the company's net profit forecast for 23-25 to 35/38/42 million yuan (previous value was 500/61/750 million yuan) to maintain the “buy” rating.

Risk warning: Digital transformation falls short of expectations, order settlement speed falls short of expectations, market development falls short of expectations, project gross margin falls short of expectations, and personnel efficiency improvement falls short of expectations.