The low-margin EPC business continues to shrink, and the growth of signing orders is expected to promote the steady recovery of profits. In Q1-3 of 2023, the Company realized a total operating income of RMB 1.05 billion yuan, down 18.7% at the same time, mainly due to: 1) the Company actively contracted the EPC business with low gross profit;2) affected by the epidemic situation in 2022, the newly signed orders declined, affecting the revenue conversion of the current period. Q1-3 realized parent net profit of 140 million yuan, down 3.6% at the same time; deducted non-parent net profit of 100 million yuan, down 10.3% at the same time, which was mainly due to the reversal of receivable impairment of 14.46 million yuan in the current period. Quarterly, Q1/Q2/Q3 achieved revenue of 2.6/4.5/350 million yuan respectively, down 32%/7%/20%; The net profit of parent company was 414/6595/68.82 million yuan respectively, with a decrease of 209%/7%/11%. Q3 was affected by the decrease of revenue, and the performance was still under slight pressure. Q4 is expected to achieve better recovery growth on the low base of the same period (loss of 32 million yuan in 22Q4), driving the annual profit to achieve higher growth rate. According to the signing of orders, the signing orders of the Company have recovered significantly in 2023. The newly signed design orders of H1 are RMB 940 million yuan, with a year-on-year increase of 20%(including RMB 600 million yuan for assembly orders, accounting for 64%, with a year-on-year increase of 73%); the target new orders signed for the whole year will increase by 25% at the same time. It is expected that the profits in 2024 will recover steadily with the gradual conversion of new orders into revenue in 2023.

The optimization of business structure promoted the improvement of gross profit margin and continuous improvement of cash flow. In Q1-3 of 2023, the gross profit margin of the Company was 31.95%, an increase of 2pct year-on-year (4.5 pct in Q3), and the profitability continued to improve, mainly due to the decrease in the proportion of EPC business with low gross profit. During the period, the expense ratio was 16.83%, increasing by 0.79pct year-on-year, among which the sales/management/R & D/financial expense ratio was +0.02/+0.37/+0.39/+0.02pct year-on-year respectively (the year-on-year change in Q3 was +0.08/+0.95/+0.21/-0.25pct respectively). The increase of management expense ratio was mainly due to the increase of rigid cost proportion caused by the decline of revenue, and the decrease of financial expense ratio in a single quarter was mainly due to the decrease of lease interest expense of the Company. Income tax rate 13.74%,+0.71pct year-on-year. Net interest rate 13.19%,+2.07pct year-on-year. Q1-3 The net outflow of operating cash flow of the Company was RMB 30 million yuan, which was RMB 58 million less than that of the same period of last year. The cash flow continued to improve, mainly due to the good sales return of the Company, strict control of expenditure, and the increase of collection and payment funds for agent construction projects.

Shenzhen urban renewal leading enterprises are expected to benefit from the acceleration of urban village reconstruction in mega-cities. 7. The guiding opinions of the 21 th National People's Congress mentioned the transformation of villages in cities separately for the first time, requiring active promotion of the transformation of villages in super-large cities. Under the background of current economic downward pressure, the transformation of villages in cities is expected to become an important starting point for stable growth and stable real estate, with prominent strategic significance. It is expected that supporting policies such as follow-up fund support and mode optimization are expected to accelerate the implementation and accelerate the urban reform process. Since 2007, the Company has participated in the reconstruction of Shenzhen Dachong Old Village (Shenzhen China Resources City), and has been deeply engaged in urban renewal field for 16 years. According to the design rate of 4%-8%, the Company's market share rate of 20%-40%, sensitivity calculation is carried out, and it is estimated that the acceleration of Shenzhen urban village reconstruction is expected to bring 7.6 - 30.2 billion yuan of business increment to the Company, and the corresponding business increment under the median assumption is 17 billion yuan. Considering the time required for policy transmission, it is expected that some stock projects are expected to accelerate from 2024, and new projects are expected to land by the end of 2024 or 2025, which is expected to inject new growth momentum into the company's orders.

Investment suggestion: We predict that the net profit attributable to the parent company from 2023 to 2025 will be 1.67/2.06/2.51 million yuan respectively, with a year-on-year growth of 49%/23%/22%(CAGR of 2022-2025 is 31%), EPS of 0.85/1.05/1.28 yuan, PE of 17/13/11 times corresponding to the current stock price, maintaining the "Buy" rating.

Risk warning: real estate policy risk, urban village reconstruction policy promotion is less than expected risk, prefabricated and BIM business expansion is less than expected risk, etc.