Pudong Construction announced the third quarter results announcement: in the first three quarters of 2023, it achieved operating income/net profit of 135.1/5.0 billion yuan, +45.51%/+18.33% year-on-year, and achieved operating income of 51.45/net profit of 196 million yuan in the single quarter of 2023, +15.74%/-0.40% over the same period last year (using adjusted caliber).

Key points of investment

Revenue has maintained a high growth rate, and there are strong signs that performance has bottomed out

2023Q3 achieved operating income of 5.145 billion yuan, +15.74% year-on-year, and net profit of 196 million yuan, -0.4% year-on-year. Operating income/net profit for the first three quarters, net profit from net income, net profit from net income of net income and net profit of non-attributable net income of 135.1/5.0% /405 billion yuan respectively, +45.5%/+18.3%/+19.5% year-on-year. The revenue growth rate is relatively fast, and continues to send a signal that performance has been solidified (using the adjusted caliber).

In terms of profitability, the company's gross sales margin/net profit margin for the first three quarters of 2023 was 7.45%/3.74% respectively, year-on-year -0.06pct/-1.11pct. Among them, the gross margin/net profit margin for the 2023Q3 single quarter was 8.12%/3.54%, respectively, year-on-year -1.03pct/-1.24pct, and the company's profit margin declined.

Looking at the cost rate, the fee rate for the first three quarters of 2023 was 4.67%, -0.16pct year-on-year, mainly due to the financial expense rate -0.17pct year-on-year. In terms of cash flow, the company's operating cash flow for the first three quarters was -758 million yuan, and net outflow increased by 518 million yuan over the same period last year, mainly due to an increase in value-added tax and additional tax payments, an increase in payment of performance guarantees, and an increase in cash paid to and to employees after merging the Pudong Design Institute.

Focusing on the Yangtze River Delta integrated development strategy, the momentum for signing new orders is strong, and the momentum for signing orders remains strong, waiting for the order performance to be released. In the first three quarters of 2023, the total amount of new projects signed by the company was RMB 20.673 billion, an increase of 78.47% over the same period last year. Among them, the amount of new projects signed in Q3 alone was RMB 5.088 billion, an increase of 31.38% over the same period last year. Focusing on the integrated development strategy of Pudong New Area and the Yangtze River Delta, the company actively explores markets and maintains strong ability to obtain orders. Performance is expected to accumulate and weaken after orders are released.

Looking at specific business segments, the single Q3 infrastructure project/housing construction/building decoration business each signed a new contract of 1,520/33.74/195 million yuan, +27%/+47%/-49% over the same period last year. Orders for infrastructure engineering and housing construction business increased, demonstrating resilience.

When the “two old villages and one village” reform battle is underway, the company is expected to benefit from core benefits

“Two old and one village” accelerated across the board. As one of the megacities with core transformation, Shanghai plans to launch 30 new “urban village” overall renovation projects from 2023 to 2025, involving about 85 “urban village” sites, about 16,400 village (residential) households, and a housing area of about 5.48 million square meters. Up to now, the “two old villages and one village” renovation work in Shanghai has been fully implemented, and relevant results are gradually showing. The sporadic renovation of the central city has been completed 85,200 square meters, and is expected to complete 120,000 square meters throughout the year; 247,700 square meters of unfurnished housing have been completed, with a plan to complete 280,000 square meters by the end of the year; 10 “urban village” renovation projects have started, and the annual plan has been completed ahead of schedule.

The “vanguard” of infrastructure in Pudong is expected to benefit from the implementation of urban village rehabilitation policies. At present, the company has won bids for projects such as the “urban village” transformation C03A-2 plot in Dongming Village, Sanlin Town. The company's holding company, Pufa Group, has undertaken construction tasks such as the “urban village” renovation in Tangzhen, Sanlin and Beicai, and the expropriation of more than 4 million square meters of housing. As the sole listed construction company under the Pudong Development Group, the company is expected to undertake regional infrastructure dividends during the urban village renovation process.

Profit forecasting

It is predicted that the company's revenue for 2023-2025 will be 172.53, 209.82, and 24.290 billion yuan, EPS will be 0.69, 0.82, and 0.94 yuan respectively, and the current stock price corresponding to PE will be 9.2, 7.7, and 6.8 times, respectively, maintaining the “buy” investment rating.

Risk warning

1) Infrastructure investment fell short of expectations; 2) The company's main business revenue fell short of expectations; 3) the company's repayment fell short of expectations; 4) the “two old villages” renovation fell short of expectations.