Event: Hangxiao Steel Construction released its 2023 three-quarter report. In the first three quarters of 23 years, the company achieved total operating income/net profit of net profit/net profit after deducting non-net profit of 77/25/230 million yuan, +5%/+52% year-on-year, +5%/+52%; 23Q3, respectively, was 28.5/0.4 billion yuan, +2%/+2% year-on-year.
Comment:
Orders for steel structures are growing rapidly, and construction of new bases is progressing steadily. In the first three quarters of the year 23, the total amount of new contracts signed by the company/steel structure/Wanjun Green Construction was 136/120/1.4 billion yuan respectively, +8%/+32%/-57% year-on-year respectively. As of June '23, the company has put into operation and is currently constructing 18 steel structure manufacturing and processing bases, and also has 6 production bases for supporting building materials. In 2022, the company completed a fixed increase, raising a total capital of 850 million yuan, and plans to invest in the construction of a new Dajiangdong green prefabricated building intelligent manufacturing demonstration base in Qiantang New District of Hangzhou. After completion, the project will form a production capacity of 450,000 tons of steel structure products and 2.5 million square meters of enclosure products, which is expected to further enhance the company's production capacity and competitive advantage in the field of green prefabricated steel structure construction; by the end of 23H1, construction of this base is progressing steadily.
Overseas business may provide room for incremental growth. According to the company's announcement, 23H1's overseas project contract amount is 980 million yuan, which is a big breakthrough compared to the stagnation of overseas business during the pandemic.
Most of the company's 18 subsidiaries are distributed in coastal regions and have extensive coverage of overseas markets; it has built projects such as Qatar Doha International Airport, Iceland National Concert Hall and Convention Center, Malaysia Cainiao Airport, and Puerto Rico Convention Center, and its business has covered dozens of countries or regions on five continents.
Gross margin improved year over year. In the first three quarters of 23 years, the company's comprehensive gross profit margin was 16%, +2pct year-on-year; of these, 23Q3 gross margin was 14.6%, +0.9pct year-on-year. In the first three quarters of 23 years, the company's net operating cash flow was 680 million yuan, or 270 million yuan, or due to a sharp decline in revenue over the same period last year.
Profit forecast, valuation and rating: Hangxiao Steel has a strong competitive advantage in the field of steel structure engineering, and steel structure orders grew rapidly in the first three quarters of 2023; at the same time, the company is actively developing overseas business, which may contribute new revenue and profit growth points to the company. Considering the growth rate of revenue and profit in the first three quarters of 2023, we adjusted the company's 2023-2024 net profit forecast to 3.1 billion yuan (down 50%) and 3.7 billion yuan (down 48%), adding 450 million yuan to the 2025 net profit forecast. The current price corresponds to the dynamic price-earnings ratio of 27x in 2023, maintaining the “increase in holdings” rating.
Risk warning: Downstream steel structure demand falls short of expectations, risk of sharp rise in upstream steel prices, risk of order execution falling short of expectations, risk of repeated outbreaks of the epidemic.