3Q23 performance is lower than we expected.

The company announced 3Q23 results: 1-3Q23 realized income of 16.473 billion yuan, year-on-year-5.89%, net profit of 851 million yuan, year-on-year-29.24%, 3Q23 income of 5.899 billion yuan, year-on-year-4.82%, net profit of 238 million yuan,-29.20%. Due to the increase in the provision for impairment of receivables of 3Q23, the performance was lower than we expected.

The main results are as follows: 1) the comprehensive gross profit margin is slightly under pressure, and the control of expense rate is relatively stable. 3Q23 gross profit margin year-on-year-1.1ppt to 14.3%; period expense rate year-on-year-0.4ppt to 7.6%, in which sales / R & D expense rates are year-on-year + 0.1ppt/-0.6ppt to 1.5% 1.1ppt 3.3%, management / financial expenses are flat at 2.6% 1.1ppt 0.2% X 2) the decrease in impairment makes a positive contribution to net profit. Asset + credit impairment loss-21.89 million yuan to 128 million yuan; net interest rate-1.4ppt to 4.0% year-on-year. 3) the overall performance of cash flow tends to improve. The net cash outflow from 3Q23's operating activities was 153 million yuan, which was 41.32 million yuan less than the same period last year.

Trend of development

Newly signed orders accelerated sharply compared with the same period last year, and the design business is resilient. 3Q23 company signed a new order of 6.406 billion yuan, + 14.8% compared with the same period last year. Among them, the public / residential / design business was respectively + 9.3%, 15.0% and 81.1% respectively compared with the same period last year, accelerating + 48.1ppt/16.0ppt/115.4ppt respectively over the same period last year, and the pace of receiving orders was significantly accelerated. At present, the company has 24.036 billion yuan in-hand orders and 4.533 billion yuan in unsigned orders. We believe that sufficient on-hand orders are expected to provide support for the company's subsequent performance growth.

Comply with the trend of Xu Li assembly technology, actively broaden the business boundary. The company editor-in-chief China Assembly Association's first assembly standard-CBDA standard "Technical regulations for Residential Assembly Decoration", which we believe will help stabilize the company's leading position in the industry. At the same time, the company accelerates the exploration of the medical care and education sector, with cutting-edge qualifications in areas such as special equipment industrial piping (GC2), and continues to create "model" projects. Looking to the future, we believe that thanks to the company's continued construction of high-tech barriers in assembly, BIM digitization and other areas, the company is expected to continue to seize business development opportunities to drive medium-and long-term efficiency development.

Balance sheet is healthy and optimistic about the medium-and long-term development of the company. At the end of 3Q23, the asset-liability ratio of the company was optimized by 64% compared with the same period last year (66% at the end of 3Q22), maintaining a reasonable level of leverage; the net debt ratio was-31%, still in a net cash state. We believe that the current downward period of the industry may accelerate the clearing of the supply side of the industry, and the company is expected to achieve rapid growth after the recovery and stabilization of the demand side of the industry, relying on its leading brand, capital management and technology research and development capabilities over the years. We continue to be optimistic about the company's medium-and long-term development prospects.

Profit forecast and valuation

Considering that the industry is still in the stage of weak demand recovery, we cut the net profit of 2023e/2024e by 34%, 40% at 9.5 yuan and 1.07 billion yuan. The company currently trades with 11.6x/10.3x 2023e/2024eP/E. Maintain an industry rating that outperforms. Considering the central callback of the current overall valuation of the sector, we reduce the target price by 20% to 5.20 yuan, corresponding to 14.5x/12.9x 2023e/2024e Pmax E and 26% upside space.

Risk

The landing speed of the order was not as fast as expected, and the impairment provision exceeded expectations.