The company's 2023Q3 revenue and performance have achieved significant growth compared with the previous month, mainly due to the accelerated conversion of orders into income, if deducting the impact of equity payments, the actual performance growth is faster. In terms of operating quality, the company's gross profit margin and operating cash flow maintain a high level, continuing high-quality operation. Considering that the company's newly signed orders have maintained rapid growth since the beginning of this year at a high base, it will continue to benefit from the acceleration of infrastructure demand in Southeast Asia, the Middle East and other regions in the medium to long term, and the company is expected to enter the fast lane and maintain high-quality operations. we maintain a "buy" rating and give the company a target price of 31 yuan.

The company's Q3 revenue performance increased significantly, excluding equity payments, the performance growth rate is even faster. In 2023, the company's Q1-Q3 realized operating income of 901 million yuan, an increase of 51.97% over the same period last year. The company realized operating income of 335 million yuan, an increase of 83.38% over the same period last year, and a year-on-year increase of 4.46%. Q3 realized a net profit of 38.0677 million yuan, an increase of 50.30% over the same period last year, if the equity payment fees incurred by the company due to equity incentives were excluded. Then the net profit attributable to Q3 increased by 123.16% year-on-year to 56.5221 million yuan (from the company's official Wechat official account). Q1-Q3 realized deduction of non-return net profit of 137 million yuan, an increase of 3.31% over the same period last year. Q3 realized deduction of non-return net profit of 37.1416 million yuan, an increase of 65.75% over the same period last year. The company's overall revenue and profits have increased significantly compared with the same period last year, and we expect to maintain a booming growth in orders, while the construction cycle of foundation treatment projects is relatively short, after the company issued a pre-increase announcement on its performance. It is expected that operating income will reach 840 million yuan to 880 million yuan in the first three quarters of 2023, and this announcement will exceed the performance forecast.

The gross profit margin remained at a high level and the expense rate decreased. The company's Q1-Q3 gross profit margin decreased by 33.20%, down 8.93% from the same period last year. Q3 achieved a gross profit margin of 29.65% and reduced 2.77pcts compared with the same period last year. We expect the gross profit margin to decline slightly or because the company undertakes national and regional business with better payment conditions, corresponding to a slight decrease in gross profit margin when bidding. In terms of expense rate, the company's 2023Q1-Q3 expense rate (including R & D expenses) was 15.02%, which decreased 1.43pcts compared with the same period last year, and the sales / management / R & D / financial expense rates were 0.93% (- 0.37pct), 13.10% (- 2.37 pcts), 1.59% (- 0.49 pct) and-0.60% (+ 1.79 pcts), respectively. The loss rate of asset + credit impairment was 0.27%, which decreased 1.25pcts compared with the same period last year, and the final attributable net interest rate was 16.00%, which decreased 7.28pcts compared with the same period last year.

The operating cash flow is equal to the performance scale, and the inventory and contract assets increase with the expansion of the scale. The net operating cash flow of the company Q1-3 was 140 million yuan, still maintaining a net present ratio of about 100%, down 13.58% from the same period last year (mainly due to a high base in the same period last year), Q1-Q3 cash-to-cash ratio of 94.99%, reduced 20.63pcts, cash-to-cash ratio of 91.34%, a decrease of 19.64pcts. The company's total 2023Q3 contract assets + inventory reached 449 million yuan, an increase of 41.17% over the end of last year, which we believe is mainly due to the acceleration of related orders.

High base orders to maintain high growth, the company's development into the fast track. The company deeply ploughed Belt and Road Initiative's Southeast Asian and Middle East markets. Previously, the newly signed 2023H1 orders reached 666 million yuan, an increase of 28.90% over the same period last year, including 487 million yuan in overseas markets and 179 million yuan in the domestic market, maintaining high growth despite the substantial increase in new orders signed in 2022. In the short term, construction projects in Southeast Asian countries are gradually advancing. Looking to the future, with the improvement of foundation construction demand for different types of infrastructure and large-scale housing construction projects under the future construction investment decisions in Southeast Asia and the Middle East, and recent Saudi Arabia-related large-scale projects in the Middle East are also advancing as planned, the future industry demand is booming, the company is expected to continue to benefit and develop into the fast track.

Risk factors: the progress of major projects is not as expected; the risk of large exchange rate fluctuations; low-price competition leads to a downward gross margin; a sharp rise in raw material prices; lower-than-expected demand; and the risk that accounts receivable cannot be recovered.

Earnings forecast, valuation and rating: the company is deeply engaged in overseas markets, especially in Southeast Asia, and its technology, standards and brands have been highly recognized. In the short term, the demand for foundation treatment in Southeast Asia, which undertakes the transfer of manufacturing, has increased rapidly; in the medium to long term, the company has formulated a "three-step" market development plan for Southeast Asia-the Middle East, South Asia and Latin America-Africa. It is expected to continue to benefit from the demand from different stages of development in Southeast Asia, the Middle East and other countries.

According to the company's semi-annual report in 2023, the overall order of the company is good, the newly signed contract reaches 666 million yuan, and taking into account the short construction period of the foundation treatment project and the high certainty of future income, we predict that the company's 2023-2025 homing net profit will be 2.19pm 2.90pm 374 million respectively, and the current price corresponds to 28.8pm 21.7mm 16.9 times. Valuation level: 1) horizontally, comparable companies mainly include Sinochem Rock and soil, Zhongyan Earth, and Xiangjiang City; from 2021 to now, the average (ttm) PE level of the comparable company is 32.7,30.6,16.6 times respectively; 2) vertically, the average PE (ttm) of the company since its listing in 2021 is 40.1 times. Considering the continuous improvement of the company's performance in recent years, the quality of superimposed operation is generally better than that of comparable enterprises (the company's annual gross profit margin of 2023H1 is 35.3%, which exceeds 8.79%, 16.10% and 24.91% of Sinochem, Zhongyan and Xiangjiang. In terms of payback, unlike domestic enterprises, the company mainly derives its revenue from overseas business. According to the company's announcement, the payment terms for some overseas projects are 100% per month, but the terms of domestic payment are "60% of the project settlement price within one month after project completion and acceptance, and 80% of the project settlement price within one year after project completion and acceptance". We think we can give the company a valuation of 35 times PE in 2024. Corresponding to the market capitalization of 10.2 billion yuan, and considering that the average PB of the company since listing is about 3 times, we think we can give the company 3 times PB in 2024, corresponding to the market capitalization of 6.1 billion yuan. Based on the comprehensive valuation of PE and PB, we believe that the reasonable market capitalization of the company is about 9 billion yuan, corresponding to the target price of 31 yuan, maintaining the "buy" rating.