We raise the investment rating to "Buy" but reduce TP to HK$3.90. We forecast EPS in 2023-2025 to be -RMB0.410/ RMB0.093/ RMB0.579, respectively. We lower the TP to HK$3.90, corresponding to 16.8x/ 9.3x/ 6.4x 2023/ 2024/ 2025 EV/EBITDA.
1H2023 revenue decreased by 2.1% YoY to RMB939 million.
Shareholders' net loss narrowed 68.6% YoY to RMB103 million. Results were in line with expectation. Gross margin was 22.5% (+3.4 ppts). 1H2023 operating cash inflow was RMB315 million (+77.1%).1H2023 total new contracts amounted to RMB1,850 million (+48.1%). As at June 30, 2023, total backlog amounted to RMB5,536 million (+10.3%).
Actively forging second growth curve and maintaining technology advancement in prefabricated construction industry. 1) Structure of new contracts has been significantly optimized, focusing on urban renewal and the construction of affordable housing. The proportion of new contracts in commercial housing projects has significantly decreased from 62% in 2022 to 35% in 1H2023, and that for affordable housing/urban renewal projects has significantly increased from 22% in 2022 to 33% in 1H2023; 2) due to vigorously developed digital EPC business, 1H2023 revenue and gross profit contributions of the digital EPC business reached 9.8% and 15.3% respectively, with no related revenue or gross profit recognized during the same period last year, and new contract values for this business has increased significantly by 50.1% YoY, reaching RMB225 million; 3) the Company continues to consolidate the technological advancement in the field of prefabricated construction and promote more application scenarios, and plans to complete 50 patent submissions for 2H2023, further solidifying its leading position in the technology of prefabricated construction.
Catalysts: 1) The recovery of the real estate market is accelerating; 2) the application and popularity of use of modular integrated product is accelerating due to increase in cost competitiveness and environmental protection awareness.
Risks: 1) Government infrastructure spending may be lower than expected; 2) overseas project risks.