In the first three quarters of 2023, the company achieved operating income of 6.41 billion Hong Kong dollars, an increase of 25.5 percent over the same period last year, and an operating profit of 660 million Hong Kong dollars, an increase of 35.8 percent over the same period last year. Overall, the company's performance growth is in line with the "14th five-year Plan" business target (achieving a net profit of HK $1 billion and a five-year compound growth rate of 39%), and continues to create a high degree of certainty of performance. With the layout of emerging markets and BIPV, the company's performance is expected to continue to grow rapidly. Taking into account the fact that the company is still in a period of rapid growth and a high degree of certainty in its performance, a combination of comparable corporate PE valuation and the company's historical PB valuation is given to the target market value of HK $7.5 billion, corresponding to the target price of HK $3.30, maintaining a "buy" rating.

Revenue accelerated in the third quarter, with the share of Hong Kong, Macao and the mainland expanding. The company achieved revenue of HK $6.41 billion in the first three quarters of 2023, an increase of 25.5% over the same period last year, and HK $1.69 billion in the third quarter alone, an increase of 30.2% over the same period last year.

The company maintains the strategy of "expanding Hong Kong and Macao, expanding the mainland and optimizing overseas". Revenue from Hong Kong and Macao reached HK $3.43 billion, up 42.4% from the same period last year, accounting for 53.5%. Mainland revenue reached HK $1.24 billion, up 53.7% from the same period last year, accounting for 19.4%. Overseas revenue decreased to HK $240 million, accounting for only 3.8%. At the operating profit end, the company achieved an operating profit of HK $660 million in the first three quarters of 2023, an increase of 35.8% over the same period last year, and an operating profit of HK $230 million in the third quarter alone, an increase of 36.5% over the same period last year. The company's performance growth combined with the "14th five-year" business target (achieving a net profit of HK $1 billion, a five-year compound growth rate of 39%), and continued to create high certainty of performance.

In the third quarter, the number of newly signed contracts increased, and the proportion of the mainland gradually increased. Under the high base of Galaxy's fourth phase of large contracts last year, the company's new contracts remained stable in the first three quarters of 2023, with a total contract amount of HK $9.01 billion, an increase of 11.6% over the same period last year, and HK $2.39 billion in the third quarter alone, an increase of 15.8% over the same period last year. Among them, Hong Kong and Macao still maintain the market-leading business scale, with a total contract value of HK $5.45 billion, and the mainland's expansion has been fruitful. The value of newly signed contracts reached HK $2.38 billion, an increase of 25.9% over the same period last year, accounting for an increase in 3pcts. The company's contracts on hand continued to grow, reaching HK $16.01 billion as of the third quarter, an increase of 15.5 per cent year-on-year. In addition, taking into account the pre-project tracking and bidding time, we expect the curtain wall project cycle of about 2-3 years, the company's performance has a high visibility.

Dilute the non-core business and gradually focus on the main business of the curtain wall. The company previously announced major transactions and signed an agreement on October 11, 2023 to sell China Shipping Supervision Co., Ltd. for HK $950 million, with an expected profit of HK $530 million. The company intends to use 40% of the net proceeds to the general working capital of the curtain wall construction business in Hong Kong and Macau, and 60% to repay part of its existing debt to reduce financial expenses. Before the transaction, the company's asset-liability ratio (as of 2023H1) was 78.7%, and the net loan ratio was 30.8% (of which bank balance and cash were HK $645 million and total bank borrowings were HK $1.375 billion). The repayment of about HK $569 million and the operation of HK $379 million will significantly improve the company's asset-liability ratio and net loan-to-loan ratio.

Relying on brand advantages to gradually break through large-scale project orders, emerging markets + BIPV are ready to start. In the Hong Kong and Macao market, the company has successively won bids for projects such as AA Space Gallery, New World Huangzhukeng Phase 5, New World, Capital Strategy Real Estate, etc.; in the mainland market, the company opened up the North China market and won the second phase of the Beijing New National Exhibition. Harvest Shenzhen landmark venue Futian International Sports and Cultural Exchange Center and other projects as well as new economy enterprise projects Overseas markets, the company also layout the Middle East and other emerging markets and BIPV areas, expand the Singapore market with a good business environment, maintain communication with Middle East owners, overseas business, especially Middle East business project implementation may bring considerable improvement for the company's performance, take the Saudi "The Line" project as an example, according to our released report "China Construction Industry (00830.HK) Investment value Analysis report-Hong Kong and Macao high-end curtain wall leader" High certainty and fast growth "(2023.4.24) estimates that, if the project is implemented, the total photovoltaic curtain wall demand of the project may reach 935.5 billion yuan. Considering that the company has completed the world's tallest building, the Burj Khalifa in Dubai, which has a deep technical reserve in the BIPV project and has many typical well-known projects in the world, we expect it to become a strong competitor in this project.

Risk factors: rising cost risks such as raw material labor, rising capital costs, exchange rate fluctuations, less-than-expected market expansion in the mainland, Hong Kong and Macao, lower-than-expected landing of overseas projects, uncertain risks in major transactions.

Profit forecast, valuation and rating: if the sale of China Shipping Supervision is successfully completed, it will improve the company's short-term net profit in the short term, and in the long run, the company will position itself in the middle and high-end curtain wall market. at the beginning of the 14th five-year Plan, it put forward the goal of achieving a net profit of HK $1 billion by 2025 and a compound growth rate of 39% in five years. So far, the performance targets for 2021 and 2022 have been met. In terms of business quality, the relative payment terms of the company's Hong Kong and Macao business are better, and the future performance growth has a strong certainty. We maintain the company's net profit forecast for 2023-2025 at HK $8.15 million, while the comparable companies are Jianghe Group and Yasha shares (previous performance losses are not taken as a reference for valuation). Jianghe Group is valued at 10 times PE in 2024 (Wind consensus expectation). Considering that China Construction Industry is focused on the middle and high-end curtain wall market, with high certainty and rapid growth, we value the company at 10 times PE in 2023. The corresponding market capitalization is 8.2 billion Hong Kong dollars. In addition, since the company proposed to reduce the scale of business in overseas markets in the "14th five-year Plan" in 2021, the average PB has been 1.80 times. Considering that the company's overseas business is expected to continue to shrink in the future, the scale of the business in the mainland, Hong Kong and Macao will continue to improve, and the operation quality is expected to continue to improve. We think it can give the company a valuation level that exceeds the historical center, that is, 2.5 times PB, which is equivalent to 71% of the valuation quantile since 2020. The corresponding market capitalization is 6.7 billion Hong Kong dollars. Combined with PE and PB valuations, we believe that the reasonable market capitalization of the company is about HK $7.5 billion, with a target price of HK $3.30, maintaining a "buy" rating.