The company released its three-quarter report for 2023. The 2023 1-3Q achieved revenue of 901 million yuan, an increase of 51.97%; net profit of 144 million yuan, an increase of 4.46%; and EPS of 0.60 yuan, an increase of 5.31%. The soft ground treatment industry has broad scope for development. Shanghai Port is leading overseas, with remarkable advantages. Maintain the company's holdings increase rating.
Key points to support ratings
Q3 Performance increased significantly, and cash flow improved markedly. 2023Q3 had revenue of 335 million yuan, an increase of 83.38%; net profit of net income of 38 million yuan, an increase of 50.30%. The company's net revenue and profit increased significantly in the third quarter, mainly due to the increase in engineering business in the third quarter. The net cash flow from the company's operating activities in the 1st to 3Q of 2023 was 140 million yuan, a decrease of 13.58%. The net operating cash flow of 2023Q3 was 85 million yuan, a significant increase of 309.32% over the previous year. The company's operating cash flow improved markedly in the third quarter.
Profit margins have declined, and cost control capabilities have increased. In 2023 1-3Q, the company's comprehensive gross margin was 33.20%, down 8.93pct; net profit margin was 16.00%, down 7.28pct. The consolidated gross margin of 2023Q3 company was 29.65%, down 2.77pct, down 7.17pct from month to month; net profit margin was 11.37%, down 2.50pct from month to month, down 9.92pct from month to month. The company's expense ratio for the period from 2023 to 3Q was 15.02%, minus 1.43 pct. Among them, the sales/management/R&D/finance expense ratio changed -0.37/-2.37/ -0.49/1.80pct year-on-year, respectively. The 2023Q3 company's expenses for the period were 16.23%, minus 2.15 pct. Among them, the sales/management/R&D/finance expense ratio changed -0.97/-1.68/-0.76/1.26pct year-on-year, respectively.
There is broad scope for the development of soft ground treatment, and Shanghai Port is leading overseas, with remarkable advantages. According to our estimates, the global ground processing market will be around US$41 billion in 2022, and is expected to grow to US$72 billion in 2030. As governments in many countries increase infrastructure investment and construction efforts after the epidemic, there is broad scope for future development of soft ground treatment enterprises. Shanghai Port took the lead in going overseas in 2008, with outstanding competitive advantages: 1) Early overseas layout, benefiting from favorable payment conditions for overseas customers. The company is the only enterprise in the domestic soft ground processing industry that is dominated by overseas business. The main customers are overseas owned enterprises and listed companies, and the payment terms are clearly better than domestic customers. 2) Rich project experience and strong technical level.
The company is the chief editor and co-editor of national standards, industry standards and association standards, and co-prepared Indonesian national standards for foundation treatment with the Indonesian government, making it the first enterprise in China's geotechnical engineering industry to export standards overseas. 3) Raw material procurement and labor cost pressure are low, which can further improve the company's profit level.
valuations
The company's performance was in line with our expectations and maintained the original profit forecast. In 2023-2025, the company's revenue is estimated to be 11.0, 13.4, and 1.6 billion yuan; net profit is 190, 240 million yuan, and 290 million yuan; EPS is 0.78, 0.98, and 1.20 yuan respectively; and PE is 34.0, 27.2, and 22.3 times, respectively. Maintain the company's holdings increase rating.
The main risks faced by ratings
The progress of major projects falls short of expectations, the risk of recovery of accounts receivable, and the risk of large exchange rate fluctuations.