Event: The company released its report for the third quarter of 2023. In 23Q1-3, the company achieved revenue of 11.554 billion yuan, yoy +4.0%, net profit from mother/net profit of 536/489 million yuan, yoy -17.80%/-20.33%; in the 23Q3 quarter, it achieved revenue of 3.830 billion yuan, yoy +0.44%, and achieved net profit of 145/121 million yuan, yoy -46.80%/-52.10%.

23Q3 Steel structure sales volume and revenue increased steadily, and performance was under pressure

23Q1-3, the company achieved sales volume of 902,000 tons of steel structures, yoy +11.4%, revenue of 11,554 billion yuan, yoy +4.0%, net profit from mother/net profit of 536/489 million yuan, yoy -17.80%/-20.33%. In 23Q3, the company achieved sales volume of 326,000 tons of steel structures, yoy +8.6%, revenue of 3.830 billion yuan, yoy +0.44%, net profit of 1.45/121 million yuan, yoy -46.80%/-52.10%. We analyzed that the pressure on performance may be due to a decline in investment income combined with a decline in gross margin and an increase in expense ratios.

23Q1-3 Gross margin declined, expense ratio increased

In terms of gross profit: 23Q1-3, the company's comprehensive gross profit margin is 13.80%, yoy-0.86pct. On a quarterly basis, the 23Q1/Q2/Q3 composite gross margin was 14.05%/14.25%/13.10%, respectively.

In terms of expenses: 23Q1-3, the company's period expense ratio is 4.85%, yoy+0.29pct, of which the sales/management/finance/R&D expense ratio is 1.07%/3.32%/0.46%/4.08%, yoy+ 0.15/+0.39/ -0.25/ +0.10pct, respectively.

In terms of cash flow: 23Q1-3, the company's net operating cash flow was 362 million yuan, a year-on-year decrease of 208 million yuan; 23Q3, the net operating cash flow outflow was 428 million yuan, an increase of 251 million yuan over the previous year.

In terms of new signings: 23Q1-3, the company signed a total of 16.11 billion yuan, an increase of 10.1% over the previous year; of these, 23Q3 signed 4.92 billion yuan, -22% year-on-year. By business, professional subcontracting integration: 23Q1-3 signed a new contract of 12.95 billion yuan, +3.1%; 23Q3, a new contract of 4.27 billion yuan, -19.7%; of this, a new contract for industrial construction was 2.74 billion yuan, +20.4% over the same period last year. Emerging businesses (EPC and assembly, industrial chains and strategic alliances, distributed photovoltaics): 23Q1-3, a new contract of 3.05 billion yuan, +56.7%; 23Q3, a new contract of 6.1 billion yuan, a year-on-year increase of -35.9%. The overall growth was rapid, but there were large quarterly fluctuations.

The main business is stable and the BIPV business is developing rapidly

1) The company's main steel structure business is progressing steadily: the main signed customers include BYD, Geely, BMW, Haitian Food, and now Mailang, Fanuc, Market Opener, Dutch Quatnax, and leading enterprises in the countercyclical industry to support the steady progress of the company's future business; 2) The BIPV business is expected to increase profits: on the strategic cooperation side, the company has signed cooperation agreements with Minshi Group, Changhong Hi-Tech and other companies on distributed photovoltaic power generation projects to achieve new breakthroughs in the company's BIPV business; order side, distributed company, 23Q1-3 PV BIPV business contract amount 100 million yuan. Looking at 100 million yuan in a single quarter, 69 million yuan was signed in July-September, an increase of 110% over the previous month. Cooperate with China Power Investment Group to establish a joint venture company, Changjiang Precision (Shanghai) New Energy Co., Ltd., to promote the development of the BIPV new energy field in the form of “development+investment+construction+transfer”, open up the capital and asset side of the BIPV industry chain, help the company make full use of the advantages of high-quality roof resources, promote the development of BIPV business, and further promote the development of the main steel structure industry and enhance overall profitability.

Profit forecast and investment advice: Considering the decline in profitability of the company from 23Q1-3 and the slowdown in the growth rate of new signings, we lowered the company's profit forecast. The company's 2023-2025 operating income is expected to be 147.69, 172.70, and 20.444 billion yuan, year-on-year, -5.4%, +16.9%, +18.4%, net profit of 6.22 (previous value 8.69), 7.34 (previous value 10.46), and 855 million yuan (previous value: 12.19), corresponding EPS is 0.31, 0.36, and 0.42 yuan. The current price corresponding to PE is 10.71, 9.07, and 7.79 times. In the long run, the company's transformation to EPC is progressing steadily, and the rapid growth of the BIPV business is expected to increase profits. Maintain a “buy” rating.

Risk warning events: the penetration rate of steel structure prefabricated buildings increased less than expected; risk of fluctuations in raw material prices; the company's BIPV business development fell short of expectations.