Revenue was stable, expenses were high, and net profit declined significantly. In the first half of 2023, the company achieved operating income of 162 million yuan, an increase of 0.19% over the previous year, a net profit loss of 45 million yuan, and a loss margin of 169.4% year-on-year. Among them, quarterly revenue for the first and second quarters was 0.59/103 million yuan, respectively, +0.68%/-0.09% year-on-year, and net profit loss for the second quarter was 0.39/06 billion yuan, respectively. The company currently has the same total number of contracts in place year on year, operating cash flow has improved year on year, and adheres to the bottom line of operational safety. The company's net profit declined significantly, mainly due to: 1) high cost and expenditure inertia, lack of budget execution, undetermined stop-loss of existing projects with poor management, and new business layouts that did not contribute profit; 2) R&D expenses were high. The company's R&D investment in the first half of the year accounted for more than 11%, deepening research in low-carbon technology, DC construction, etc.; 3) Financial expenses surged, mainly due to the surging of financial expenses, after the completion and acceptance of future buildings, one of the company's core assets, interest on long-term loans.

By business, public credit services are still the main force, and urban planning revenue is growing steadily. In the first half of the year, the company's public credit services/urban planning/architectural design business achieved revenue of 0.75/0.52/0.2 billion yuan, respectively, +4.41%/+27.11%/-25% over the same period last year. The company's main business still focuses on the two major segments of “Green City Development Full Process Technology” service and “Green Human Settlement Trust Full Process Technology” service.

Although performance is under pressure, overall, the business layout is perfect, the location advantage is obvious, and there is plenty of room for improvement in management. 1) The business focuses on green buildings: With a “dual carbon” background, green building standards are expected to be fully implemented. The company has co-edited a number of industry standards and actively promoted new technologies such as “optical storage and direct soft storage” and “virtual power plants”. The Shenzhen Green Construction Regulations were officially implemented in July last year, opening up market space. 2) Urban village renovation opportunities in megacities: The total number of urban villages in Shenzhen exceeds 1,700, covers an area of 13,383 hectares, and has a lot of room for renovation. Urban village renovation requires inspection, planning and design first. As a local state-owned property in Shenzhen, the company has the ability and opportunity to participate in the renovation. 3) Xiong'an location advantage: In 17 years, the company laid out the Xiong'an market, planned and designed the Xiong'an Business Service Center, etc. As Xiong'an entered the large-scale construction stage, the business had great potential.

Investment advice: Lower the profit forecast and maintain the “buy” rating. The company is deeply involved in the green building industry. Its main business is public trust services and urban planning. Although its performance in the first half of the year was under pressure, overall, the business layout is perfect, the location advantage is obvious, and there is plenty of room for management improvement. The company's net profit for 2023-2025 is estimated to be 0.75/0.95/122 million yuan, and earnings per share is 0.51/0.65/0.83 yuan, corresponding to the current stock price PE of 32.8/25.7/20.2X. Based on absolute valuation and relative valuation, the company's reasonable valuation is 18.6-20.3 yuan, which has a premium of 11.2%-21.3% over the current stock price, maintaining a “buy” rating.

Risk warning: Policy implementation falls short of expectations; market competition intensifies; company signing, contract implementation, and settlement progress falls short of expectations; R&D investment is difficult to translate into technological achievements, etc.