3Q23 business meets our expectations

The company announced 3Q23 results: 1-3Q23 income of HK $6.409 billion, year-on-year + 25.5%, operating profit HK $658 million, year-on-year + 35.8%; implied 3Q23 income HK $1.693 billion, year-on-year + 30.1%, operating profit HK $61.49 million, year-on-year + 6.8%, the performance is in line with our expectations.

Trend of development

The market performance of Hong Kong and Macao is sound, and plans such as the northern part of Hong Kong and Lantau tomorrow are expected to drive business development. 1-3Q23 earned HK $3.429 billion in Hong Kong and Macao, + 42.4% year-on-year, and revenue maintained rapid growth; the newly signed contract reached HK $5.45 billion, + 3.7% compared with the same period last year; of which 3Q23 signed HK $1.195 billion in the Hong Kong and Macao market in a single quarter, + 23.2% of the same period last year. The company still maintains a leading position in the public construction and commercial and residential markets in Hong Kong and Macao, and has won the bid for AA Aerospace Corridor, New World, and capital strategy real estate projects. Looking ahead, we believe that the company will benefit from large-scale public construction plans such as the Hong Kong 10-year Hospital Development Plan, and there is still a strong demand driver in the Hong Kong and Macao market.

Mainland orders show a strong growth trend, optimistic about the follow-up growth of mainland business. 1-3Q23's mainland revenue was HK $1.241 billion, + 53.7% compared with the same period last year; the amount of newly signed contracts reached HK $2.38 billion, + 26.3% compared with the same period last year; of which 3Q23 signed HK $2.08 billion in the mainland market in a single quarter, + 125.9% compared with the same period last year, which was the main source of growth in newly signed orders in the first three quarters. On the basis of stabilizing the South China market, the company actively develops the North China market, winning the bid for difficult projects such as the second phase of Beijing New National Exhibition, Shenzhen landmark venue Futian International Sports and Cultural Exchange Center, and good customer demand for new economy enterprises. Winning the bid Zhongxing Super headquarters, Haoyuan Cloud Computing big data Base and other projects. Looking to the future, we believe that the company has high competition barriers in the curtain wall field, while the mainland high-end curtain wall market still has a relatively broad space for development, and the scale of the company's business in the mainland market is expected to further enhance.

It is planned to gradually divest the non-core business, highlight the main business of curtain wall, and pay attention to the progress of equity sale of wholly-owned subsidiaries.

On October 11, according to the company's announcement, the company intends to sell 100% of its wholly-owned subsidiary China Supervision to China Shipping Properties, with a transaction consideration of about HK $950 million. The company expects to earn about HK $530 million, which is expected to significantly improve the financial indicators for the whole year of 2023. The company is currently focusing on the development of curtain wall business, and the main business of China Shipping Supervision is the company's non-core business, so this transaction is in line with the company's strategic plan to focus on curtain wall business. The company is still building a technical moat in the middle and high-end curtain wall market, BIPV, modular window wall and other technologies are expected to continue to lead, follow-up recommendations continue to pay attention to the sale of shares in wholly-owned subsidiaries and the company's photovoltaic curtain wall promotion progress.

Profit forecast and valuation

We keep our profit forecast unchanged. It is currently traded at 9.6max 7.2x 2023e/24e P Universe E. Maintain the outperform industry rating and maintain the target price of HK $3.65, corresponding to 14.3x/10.7x 2023e/24e PUBG E, which has 48 per cent upside compared to the current share price.

Risk

Demand fell short of expectations, orders landed less than expected, and major deals fell short of expectations.