Summary of events: the company issued an interim report that 2023H1 achieved operating income of 5.686 billion yuan, year-on-year + 4.50%, net profit of 128 million yuan, + 7.42%, non-return net profit of 111 million yuan, year-on-year + 18.89%, newly signed order 7.36 billion yuan, year-on-year + 7.29%, in-hand order 15.508 billion yuan remained stable over the same period last year. Among them, Q2 realized income of 3.597 billion yuan, year-on-year + 5.77%, net profit of 65.85 million yuan, + 98.56%, and non-return net profit of 56.79 million yuan, + 289.75% over the same period last year. The performance benefit from a low base rebounded significantly, in line with market expectations. 23H1 operating net cash flow-1.11 billion yuan, year-on-year + 13.69%, cash flow gradually improved.

Decoration income short-term pressure, the bottom gradually clear, profit quality improvement. 23H1's architectural decoration engineering business income of 2.875 billion yuan,-9.03% compared with the same period last year, the short-term demand of the industry is under pressure, and a large number of competitors at the bottom of the industry withdraw from the decoration industry or transform new business.

We can see the positive factors from the order growth rate. 23H1's total newly signed orders increased to 7.36 billion yuan, + 7.29% compared with the same period last year, of which residential decoration increased significantly, with a year-on-year increase of + 137.57%. Among them, Q2 newly signed orders increased by 11.24% compared with the previous year.

In the long run, the survival of the fittest of real estate developers is beneficial to high-quality housing enterprises and high-quality suppliers, and the bottom is gradually clear; the gross profit margin of 23H1 in architectural decoration engineering business increased by 2.35% over the same period last year. During the trough of the industry, the company strictly controlled the quality of orders, optimized the structure, accelerated cost reduction and payback management, and improved the quality of profits.

Curtain wall business high growth, BIPV raised the threshold. 23H1 curtain wall decoration project revenue of 2.227 billion yuan, year-on-year + 33.32%, outstanding performance. In the field of curtain wall, the company has been ranked second among the top 100 enterprises in China's construction curtain wall industry for five consecutive years. The company gives full play to its technical advantages in professional construction and has many high-quality projects in the industry. Based on its own accumulation and strength in the field of curtain wall, according to the company's annual report, the company cooperated with long Yan Energy Technology (Hangzhou), an enterprise of cadmium telluride photovoltaic film, in the field of BIPV, and the two sides jointly set up "Yasha-long Yan Building Photovoltaic Integration Joint Laboratory" to integrate building resources and open up the BIPV market. In 2022, the company has won the bid for BIPV project orders of 340 million yuan, an increase of 1021% over the same period last year, and the project orders are growing rapidly. We believe that the BIPV project is an area with high barriers and high added value, and there is a lot of room for the future. It can not only fill the gap in the field of BIPV, but also drain the traditional curtain wall and decoration business (BIPV is mainly public construction customers), and the cooperation between businesses is strong.

The prefabricated building and decoration policy will be vigorously promoted with considerable increment in the future. As the industry leader of assembly decoration, the company has formed a unique seven assembly systems. The policy of Zhejiang Province encourages: in February 2023, Zhejiang Province made it clear that efforts should be made to improve the quality of prefabricated construction and promote the coordinated development of intelligent construction and the industrialization of new buildings; in July 2023, Hangzhou requires that the proportion of prefabricated buildings reach 40% by 2027, the implementation of supporting details and the promotion of prefabricated interiors. We believe that the local prefabricated construction policy is expected to continue to support the company's industrial order volume, and because of the characteristics of the production and installation of prefabricated decoration, it is naturally in line with urban village transformation and urban renewal. The company will be the first beneficiaries in this field.

Intelligent and 3D printing will grow in the future. The income of 23H1 intelligent system integration is 264 million yuan,-3.31% compared with the same period last year; Xiamen Wanan, a subsidiary of one of the implementation themes, earned 310 million yuan in the first half of the year; according to the company's semi-annual report, Wanan Intelligence mainly participated in the research on the "research on the system and mechanism of the transformation of old residential areas" and "the research and application of key technologies for the health transformation of existing communities" to accumulate strength for the stock market. In the 3D printing industry, the shareholding company Inc. (23.52%) has 377 patents, including 26 invention patents, which is the first high-tech company in the world to master 3D architectural printing. 3D printing architecture technology brings revolution to the whole building system, which integrates design, construction, equipment, new materials and applications into a new system.

Investment suggestion

Taking into account the delayed release pace of downstream demand and the impact of impairment, we maintain the income forecast of 135.89max 150.36pm for 2023-2025, reduce the net profit of the parent by RMB 679 million (formerly RMB 4.67pm), and reduce the EPS 0.25max by RMB 0.3550,000,000 (formerly RMB 0.35max). Corresponding to the closing price of 4.78 yuan 19.23/13.52/9.43xPE on August 30. Maintain a "buy" rating.

Risk hint

The demand is lower than expected, the construction cost is higher than expected, the new business development is not as expected, and the systemic risk.