Main points of investment

China Construction Group released its quarterly report for 2023: the company's 2023Q1-Q3 realized operating income of 5.528 billion yuan, an increase of 11.63% over the same period last year; net profit of 264 million yuan, an increase of 4.40%; and net profit of 191 million yuan, an increase of 3.07% over the same period last year. Of this total, Q3 realized operating income of 2.014 billion yuan, a decrease of 3.44% over the same period last year, a net profit of 79 million yuan, a decrease of 22.92% over the same period last year, and a net profit of 65 million yuan, a decrease of 13.38% over the same period last year.

The company achieved operating income of 5.528 billion yuan in the first three quarters of 2023, an increase of 11.63% over the same period last year. The prosperity of the real estate industry is in the doldrums, and the company's revenue still achieves double-digit growth. We judge that on the one hand, the impact of 2022Q2 is low, on the other hand, as the leader of the architectural design industry, the company's performance has a strong resilience. From a quarterly point of view, the company's Q1, Q2 and Q3 achieved operating income of 1.686 billion yuan, 1.827 billion yuan and 2.014 billion yuan respectively, with year-on-year changes of + 7.41%, + 40.98% and-3.44%, respectively.

In the first three quarters of 2023, the company achieved a comprehensive gross profit margin of 21.89%, down 1.79pct from the same period last year; and a net profit margin of 5.12%, down 0.34pct from the same period last year. The decline in the company's gross profit margin is mainly due to the increase in the proportion of project contracting business with low gross profit margin. Among them, the decline of gross profit margin is greater than that of net profit rate, which is mainly due to the decrease of expense rate during the period.

The company spent 884 million yuan in the first three quarters of 2023, accounting for 16.00% of the revenue end, a year-on-year decline in 1.65pct, mainly due to the decline in the rate of management expenses.

The company's asset + credit impairment loss in the first three quarters of 2023 was 100 million yuan, accounting for 1.81% of the revenue end, an increase of 0.29pct over the same period last year. In terms of subdivision, the asset impairment retracted 4 million yuan, 6 million yuan more than the same period last year, and the credit impairment loss was 104 million yuan, an increase of 31 million yuan over the same period last year.

The net operating cash flow per share in the first three quarters of 2023 was-0.49 yuan, which was 0.36 yuan less than the same period last year. From the point of view of the ratio of receipt and cash, the ratio of 2023Q1-Q3 to cash is 104.7% and 137.1% respectively, which is + 16.9pct and + 7.8pct respectively compared with the same period last year. The increase of cash-to-cash ratio is greater than that of cash-to-cash ratio, which is the main reason for the improvement of operating cash flow.

Profit forecast and rating: based on the adverse factors such as the downturn in the architectural design industry and the lengthening of the design project cycle, we downgrade our profit forecast for the company. It is estimated that the company's net profit from 2023 to 2025 will be 414 million yuan, 458 million yuan and 500 million yuan respectively, and the corresponding PE of the closing price on October 27 will be 13.0,11.8,10.8 times respectively.

Risk tips: macroeconomic downside risks, lower-than-expected landing of on-hand orders, slow progress of construction projects, deterioration of cash flow, and loss of bad debts exceeding expectations.