Event: the company released the third quarter report of 2023, the company achieved operating income of 1.053 billion yuan in the first three quarters of 2023, down 18.73% from the same period last year; net profit of 139 million yuan, down 3.64% from the same period last year; net profit of 105 million yuan, down 10.33% from the same period last year; and basic earnings per share of 0.71 yuan, down 3.64% from the same period last year.

The business structure affected the overall revenue growth, the design orders maintained rapid growth, and the credit impairment was reversed. In the first three quarters of 2023, the company achieved operating income of 1.053 billion yuan, down 18.73% from the same period last year, of which Q1, Q2 and Q3 achieved revenue of 2.57,4.47 and 348 million yuan respectively, down 31.68%, 7.48% and 20.02% respectively over the same period last year. The decline in operating revenue compared with the same period last year was mainly due to the company's optimization of business structure and proactive contraction of EPC business, resulting in a substantial reduction in related revenue. The company achieved a net profit of 139 million yuan in the first three quarters, down 3.64% from the same period last year. Q1, Q2 and Q3 achieved a net profit of 0.04,0.66 and 69 million yuan respectively in the first quarter, turning losses into profits,-7.03% and-10.67% respectively compared with the same period last year. The decline in the company's net profit in the first three quarters was less than that of the company's EPC business with low gross profit margin, and the overall gross profit margin increased. The credit impairment loss of the company in the first three quarters was-1.4671 million yuan, which was 15.4712 million yuan less than the credit impairment loss of 14.0041 million yuan in the same period in the first half of the year, mainly due to the recovery of some receivables from individual provisions for bad debts. In the first half of the year, the company signed a new contract of 940 million yuan for its architectural design business, an increase of 19.85% over the same period last year, of which 598 million yuan was signed for assembly design, an increase of 73.26% over the same period last year.

Profitability continues to improve and cash flow continues to improve. In terms of profitability, thanks to the improvement in business structure, the proportion of low gross margin EPC business shrank significantly. In the first three quarters of 2023, the company's overall gross profit margin / net profit margin was 31.95% and 14.28% respectively, an increase of 2.01% and 2.37% pct respectively compared with the same period last year, and profitability returned to the highest level in the same period of nearly five years. In terms of expense rate, the company's expense rate in the first three quarters of 2023 was 16.83%, an increase of 0.79 pct over the same period last year, of which the management / R & D / sales / financial expense rate was 8.79%, 5.19%, 2.53%, 0.32%, 0.37, 0.39, 0.02 and 0.02 pct, respectively. In terms of cash flow, the company achieved a net operating cash flow of 30.0791 million yuan during the period, a significant increase of 57.9407 million yuan compared with 88.0198 million yuan in the same period in 2022, mainly due to sales rebates, increased collection and payment and proper fee control. In terms of debt ratio, as of the end of September 2023, the company's asset-liability ratio was 48.82%, up 0.90 pct from a year earlier.

Deep ploughing in the field of urban renewal is expected to benefit from increasing the speed of the city. In July 2023, the State Council issued the top-level policy on the transformation of villages in cities-- "guidance on actively and steadily promoting the transformation of villages in super-mega-cities", which made clear the important significance of actively and steadily implementing the transformation of villages in cities in super-mega-cities. it is expected that the implementation of the urban village transformation project will be accelerated. Since participating in Shenzhen Dachong Village renovation Project (Shenzhen Huarun City) in 2007, the company has been deeply engaged in the field of urban renewal for 16 years and has set up an urban renewal business department. at present, we have participated in urban village renovation projects throughout the country, such as Shenzhen, Guangzhou, Dongguan, Hefei, Changsha and other super-mega-city core areas. In addition, the Ministry of Housing and Construction has proposed that this round of urban village transformation will be related to the construction of indemnificatory housing. As one of the earliest design enterprises in the country to complete the research and development of urban indemnificatory apartment (talent room) products, the company has carried out the whole process research and product development of talent room, indemnificatory apartment and long-rent apartment since 2012. during this period, we independently developed a "perfect" talent (guarantee) room product, which has a core competitive advantage in the field of talent room and indemnificatory apartment.

Since the beginning of this year, the transformation of urban villages has been highly valued at the national level, and the company is expected to fully benefit from the acceleration of urban village transformation.

Investment suggestion: the company is a high-quality private leader in the field of architectural design in China, with rising industry status, rich high-quality customer resources, based on architectural design, expanding the business chain to the whole process of consulting and EPC. At the same time, it leads the industry in assembly design and BIM application, and has significant advantages in customer resources and technical experience in the field of indemnificatory apartment. The company is expected to give priority to benefit from the speed-up process of the transformation of urban villages in this round. It is estimated that the company's revenue from 2023 to 2025 will be 19.39,22.82 and 2.668 billion yuan respectively, an increase of 6.21%, 17.69% and 16.93% respectively over the same period last year, and the net profit will be 1.73,2.06 and 242 million yuan respectively. The year-on-year growth rate of 53.93%, 19.16% and 17.61 yuan will be 0.88 yuan, 1.05 yuan and 1.23 yuan respectively, and the dynamic PE will be 16.0,13.4 and 11.4 times respectively. The PB is 1.7x, 1.6x and 1.4x respectively, maintaining the "buy-A" rating and giving it 20 times PE in 2023, corresponding to the target price of 17.6yuan.

Risk tips: macroeconomic fluctuations; policy promotion is not as expected; fixed investment is declining; revenue growth in the survey and design industry in the province is not as expected; revenue in Guangdong Province is not as expected; expansion outside the province is not as expected; the progress of construction technology business is not as expected; staff turnover; decline in customer operations; increased risks in industry competition, etc.