1H23's performance met our expectations

The company announced 1H23 results: achieved revenue of 7.72 billion yuan, year-on-year increase of 6.1%, net profit of 399 million yuan, up 2.5% year on year (corresponding to the previous year's adjusted caliber); 2Q23 achieved revenue of 4.0 billion yuan, up 12.1% year on year, net profit of 210 million yuan, up 4.2% year on year. The performance was in line with our expectations.

1H23's gross margin increased by 0.1 ppt to 14.2% year on year; the total cost ratio for the four periods increased by 0.4 ppt to 8.9% year on year. Among them, sales, management, and R&D expense ratios increased by 0.1 ppt, 0.5 ppt, and 0.1 ppt, respectively; net profit margin decreased by 0.2 ppt to 5.1% year on year. In the first half of the year, the company's net operating cash inflow was 65.63 million yuan, a year-on-year correction from the previous year's net outflow of 390 million yuan; the net outflow of investment cash was 120 million yuan, a slight decrease from the previous year.

Development trends

1H23 There was a strong increase in new orders, and a high increase in EPC and prefabricated orders. We estimate that the company's steel structure business revenue growth rate and gross margin remained stable in the first half of the year. 1H23 signed a new contract of 1.2 billion yuan, an increase of 34.5% over the previous year, including 2.2 billion yuan for new EPC and prefabricated projects, an increase of 157% over the previous year.

In the first half of the year, Zhejiang Province formulated an action plan for the construction of advanced manufacturing clusters. It plans to attract investment and land more than 100 major manufacturing projects of more than 1 billion yuan and more than 20 major foreign-funded projects of 100 million US dollars or more every year. We believe it is expected to provide demand support for the company's steel structure business; in the first half of the year, the company's industrial sector joint venture chain business signed 150 million yuan of new contracts, an increase of 596% over the previous year. We believe that the company's stable customer base in industrial customers is expected to guarantee future project contracts.

Follow the progress of BIPV and energy storage business implementation. According to the company announcement, in early 2023, the company signed a cooperation agreement with China Electric Power Investment Group to establish a joint venture to promote BIPV development in the form of “development+investment+construction+transfer”; up to now, the company has signed cooperation agreements on distributed photovoltaic power generation projects with Minshi Group, Changhong Hi-Tech and other companies; continues to promote the development of molten salt energy storage business and lay out industrial and commercial energy storage business. We believe that with its broad industrial customer base, the company is expected to gain a leading edge in acquiring BIPV business. We recommend that you pay attention to the progress of related business implementation.

Profit forecasting and valuation

We keep our profit forecast unchanged. The company is currently trading at 8.8x/7.3x 2023e/2024e P/E. Maintaining an outperforming industry rating, maintaining a target price of 4.78 yuan, corresponding to 11.3x/9.4x 2023E/2024EP/E, there is 28% upside compared to the current stock price.

risks

The acceptance of the steel structure and BIPV projects fell short of expectations.