Announce draft incentives for restricted stocks and stock options to help medium- to long-term high-quality development. On November 12, the company announced a draft incentive for restricted stocks and stock options. It plans to grant incentive targets no more than 8.4 million restricted shares and no more than 3.6 million stock options. The grant prices are 8.85 yuan/share and 16.09 yuan/share, respectively. The total number of incentive recipients granted under this incentive plan does not exceed 360 people. We believe that this incentive plan is expected to fully mobilize the initiative and creativity of employees, promote the company's stable and high-quality development, and maintain the company's net profit forecast of 4.5/5.9/760 million yuan (CAGR +23.6%) for 23-25. Comparable to the company's unanimous average forecast of 0.76xPEG in 23 years, we believe that the company has high barriers in the rail transit design industry, and is expected to bring new room for growth, giving 23 years 0.76xPEG, target price 20.12 yuan, maintain “buying”.

The net profit target corresponds to the 23-26 CAGR +9.9%. The company's performance assessment year for this incentive plan, which takes into account performance growth and business quality, is 24-26, and the annual performance assessment target is 1) the return on net assets for 24/25/26 is not less than 19%; 2) Based on net profit in '22, the net profit for 24/25/26 increased by no less than 21%/33%/46% (corresponding to a four-year CAGR of 9.9%); 3) The 24/25/26 operating margin is not less than 16%. At the same time, the above three items are not lower than the 75th quorum for benchmarking companies in the same industry. We believe that the performance assessment of this incentive plan not only sets net profit growth targets, but also stipulates return on net assets and operating profit margins, which reflect the company's attitude of balancing performance growth and business quality, which is expected to promote stable and high-quality development of the company.

Emphasis is placed on technological research and development innovation. The R&D investment ratio assessment target is increasing year by year. In addition to the profit level target, the assessment target of this incentive plan also includes the R&D investment ratio, and the assessment target is increasing year by year. Among them, R&D investment in 24/25/26 accounted for no less than 4.6%/4.8%/5.0% of that year's revenue, respectively (4.5% in '22). We believe that setting this goal reflects the importance the company attaches to technological research and development. As a national high-tech enterprise, the company always adheres to scientific and technological innovation, taking the lead in mastering cutting-edge key technologies for rail transit such as line network planning, passenger flow simulation, full life cycle building information modeling (BIM) design, green energy efficiency, prefabricated buildings, and smart subways. Continued investment in R&D is expected to further enhance the company's technical strength and help high-quality development.

9M23's revenue performance grew steadily, and the promotion of stock transformation projects achieved a breakthrough. 9M23's revenue/net profit was 1,86/290 million yuan, +9.5%/+10.7% year-on-year, and both revenue and profit maintained steady growth. Since '23, the company has announced a total of nearly 3 billion yuan in new contracts, providing strong support for the company's future growth. In November, the company announced the signing of the “Line 4 Phase I Station Air Conditioning System Energy Management Project Agreement” with MTR Rail Transit (Shenzhen) Co., Ltd., which estimates the total contract amount during the cooling service period is about 100 million yuan. The project company will use intelligent and efficient air conditioning system technology with independent intellectual property rights to carry out energy-saving transformation of operating subway stations. The conclusion of this contract marks a breakthrough in the industrialization promotion of the company's intelligent and efficient air conditioning system technology in overseas markets, which is expected to bring new growth to the company.

Risk warning: Project progress falls short of expectations; rail transit construction falls short of expectations; stock transformation is progressing less than expected.