Introduction to this report:
In the first three quarters, revenue rose 52%, net profit increased 4%, and operating cash flow continued to be positive. The company is deeply involved in the Belt and Road markets such as Southeast Asia and the Middle East, which have traditional advantages, and introduced equity incentives and employee stock ownership plans to stimulate organizational vitality.
Key points of investment:
Maintain an increase in holdings. The performance of the first three quarters fell short of expectations due to fluctuations in the gross margin of different projects, but domestic and overseas project settlements are expected to accelerate in the fourth quarter, maintaining the forecast that EPS will increase by 40/33/ 30% by 0.89/1.18/1.54 yuan in 2023-2025. Maintain 41 times the PE valuation in 2023 and maintain the target price of 37.07 yuan.
Net profit increased by 4% in the first three quarters below expectations, and operating income increased by 52%. (1) Revenue of 900 million yuan in the first three quarters increased 52% year on year, mainly due to the continuous release of downstream demand since this year. The company continued to cultivate advantageous regions. Q1-3 increased -17/118/ 83%, net profit from the mother increased by 4%, Q1-3 increased -73/939/ 50%, and net profit after deducting 100 million yuan increased 4%. (2) The gross profit margin for the first three quarters was 33.20% (-8.93pct), the comprehensive expense ratio was 15.02% (-1.43pct), the net profit margin was 16.00% (-7.28pct), and the weighted ROE was 8.80% (-0.62pct).
Operating cash flow continued to be positive in the first three quarters, with impairment reversing back to $02 billion. (1) Net operating cash flow for the first three quarters was 140 million yuan (160 million yuan for the same period in 2022); Q1-3 was 0.4/0.2/0.8 billion yuan (2.0/-0.6/0.2 billion yuan for the same period in 2022); the Q3 payout ratio was 93% (114% in the same period in 2022), and the payout ratio was 85% (113% in the same period in 2022). (2) Accounts receivable at the end of the third quarter were 330 million yuan, down 6% from the end of 2022, and impairment in the first three quarters returned to 0.2 billion yuan (back to 0.9 billion yuan in the same period in 2022).
Deeply cultivate the Belt and Road market, and equity incentives and employee shareholding stimulate vitality. (1) Core patented technologies such as rapid “high vacuum tightening” soft foundation treatment lay a solid foundation for business development. (2) Deeply cultivate “Belt and Road” markets such as the Southeast Asian market and Middle Eastern countries, which have traditional advantages, actively expand overseas markets such as Latin America, and continue to improve. (3) In May 2023, the equity grant incentive of 15.73 yuan/share was used to assess the 2023-2025 non-net profit growth rate (based on the 2020-2022 average) of not less than 90/140/ 180%; in June, the employee stock ownership plan completed the transfer, with a transfer price of 15.73 yuan/share, holding shares accounting for 1.26% of the total share capital.
Risk warning: macroeconomic policies have been tightened beyond expectations, infrastructure investment has fallen short of expectations, etc.