Lay out the entire prefabricated construction industry chain, expand the market with the left hand, and recruit talents with the right hand. The company was founded in 2000 and listed on the Shenzhen Stock Exchange in 2019. It is the first listed architectural design company in Shenzhen. Business segment: In 2018-2022, the company's total revenue increased from 916 million yuan to 1,825 million yuan, and CAGR +18.81%. 23H1, the company's architectural design business accounted for 77.4% of revenue, and gross margin reached 31.34%. Cost consulting and full-process engineering consulting business gross margins were 21.60% and 20.32% respectively; market layout: 23H1, the company's South China region accounted for 82.19% of revenue. The company lays out key provincial capitals to steadily operate the Central China and East China markets, and the program creation center is located in the Hong Kong region to absorb high-level overseas program design teams; Talent structure: In 2022, the company released a stock options incentive plan, and the 2021-2025 exercise conditions correspond to the 2020 net profit growth rates of 20%, 38%, 59%, 78% and 99%, respectively.

The new industrialization superimposes domestic production to replace two-wheel drive, and the prefabricated design and BIM software welcome the “blue ocean”. Industry changes:

On August 28, 2020, 9 ministries and commissions including the Ministry of Housing and Construction jointly issued “Certain Opinions on Accelerating the Development of New Construction Industrialization”. The traditional construction industry business model has 2 major pain points: non-standard products and on-site pouring. Prefabricated buildings solve industry pain points from the two dimensions of design and manufacturing, where the design process plays a decisive role; domestic substitution: prefabricated design sees 10 billion space, and demand for BIM software is expanding under domestic substitution logic. We estimate that under neutral conditions, the market demand for prefabricated PC structural architecture design in 2025 and 2030 is expected to reach 9.9 billion yuan and 15.4 billion yuan respectively; the company actively participated in domestic BIM software research and development. After 14 years of BIM pioneering exploration, 10 years of BIM positive design and promotion, 6 years of BIM application software research and development, BIM project implementation exceeds 30 million square meters.

It is expected to benefit from the transformation of urban villages in Shenzhen and the acceleration of affordable housing construction. Together, it is hoped that BIM software will be replaced domestically. Urban village transformation: Revenue elasticity is expected to be 27% under a neutral scenario. Since 2007, the company has been deeply involved in the field of urban renewal in Shenzhen for 16 years. As of 23M7, the company's urban village renovation practices have spread across the core areas of many megacities across the country, including Shenzhen, Guangzhou, Dongguan, Changsha, and Hefei. We estimate that under a neutral situation, the company's revenue elasticity contributed by urban village renovation is expected to reach 27.3%; guaranteed housing construction: Shenzhen is expected to take the lead in exploring and catalyzing demand for prefabricated buildings. According to the Economic Watch Network on October 26, 2023, the “Guiding Opinions on Planning and Construction of Affordable Housing” has recently been conveyed to all municipal governments and agencies directly under various ministries and departments. The document proposed, “Support large cities with a resident population of 3 million or more in urban areas to take the lead in exploring practices, and cities that are in a position to do so should accelerate progress.” 23H1, the company's architectural design business signed a new amount of 939 million yuan, an increase of 19.85% over the previous year, of which 598 million yuan was newly signed for prefabricated design contracts, an increase of 73.26% over the previous year. Work together to build a domestic BIM solution. By the end of 2022, the development of Zhongwang Zhicheng BIM software jointly funded by the company and Guangzhou Zhongwang Longteng Software Co., Ltd. was progressing steadily. It has realized the creation and editing of basic components, supports the insertion of custom components, and supports 2D and 3D view linkage.

Investment suggestions: The company is expected to achieve operating income of 16.15/18.07/2,058 billion yuan in 2023-2025, yoy is -11.53%/+11.91%/+13.88% respectively, net profit of 1.72/2.03/242 million yuan, yoy is +53.49%/+17.99%/+19.25%, corresponding to EPS of 0.88/ 1.04/1.24 yuan. The current price corresponding to PE is 17.17/ 14.55/ 12.20 times. From the perspective of price-earnings ratio, the current value of the company is underestimated compared to the value of comparable companies. It was covered for the first time, and a “holdings increase” rating was given.

Risk warning: The penetration rate of PC prefabricated buildings has not increased as fast as expected; the collaborative effects of the company's BIM technology have fallen short of expectations; the progress of urban village renovation and guaranteed housing construction has fallen short of expectations; the risk of bias in industry scale estimation; and the risk of untimely data updates in research reports and usage information.