2023 results are largely in line with market expectations

The company announced its 2023 results: revenue of 56.2 billion yuan, up 6% year on year; net profit to mother of 2.3 billion yuan, up 2% year on year, which is basically in line with market expectations, including 170 million yuan in impairment provisions and 200 million yuan in exchange gains and losses. The company announced a year-end dividend of RMB 0.224 per share and a full year dividend of RMB 0.343 per share. The dividend ratio is 65%, which is basically the same as the previous year.

The company signed new orders of 80.2 billion yuan in 2023, an increase of 11% over the previous year, exceeding the management guidelines of about 60.5 billion yuan (50 billion yuan domestic+1.5 billion US dollars overseas), and the amount of new contracts signed throughout the year reached a record high. By the end of 2023, the company had orders of 136.2 billion yuan, an increase of 21% over the previous year. Compared with the annual revenue of RMB 56.2 billion in 2023, the coverage was about 2.4 times higher.

Development trends

There has been a steady rise in new orders. According to the company's guidelines, the target for new orders in 2024 is 60 billion yuan from China plus 3 billion US dollars from overseas, which is a steady increase over the previous year. We mainly judge that 1) the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, which actively promotes domestic stock project renovation plans; 2) energy and chemical project construction in the Middle East continues to be a high investment in overseas projects; 3) future green new energy+traditional energy projects have become growth points: for example, biomass methanol projects (the company signed an EPC general contract with Longji Green Energy Technology Co., Ltd. for the 120,000 tons/year zero-carbon biomass methanol project). The biomass methanol market space is large and is expected to reach 10 million tons.

Gross profit margins have remained stable. The company's gross margin in 2023 was 10%, down 0.6ppt year over year. Looking ahead, we believe that the company's gross margin is expected to remain stable. The main reason is 1) the company's increase in new orders mainly comes from overseas. Overseas Chinese companies have strong competitiveness and cost control capabilities, and there is some room for improvement in gross margin; 2) the share of EPC projects is stable; 3) the company is gradually entering the high-end FEED (front-end engineering design) market, and the proportion of high-profit projects is expected to increase.

Actively give back to shareholders. In 2023, the company maintained a dividend payout ratio of 65%, repurchased a total of approximately 12.82 million shares, and used more than HK$50 million in capital. Looking ahead, we believe the company's dividend payout ratio is expected to be maintained, and repurchase efforts will be further strengthened to continue to actively give back to shareholders.

Profit forecasting and valuation

We kept our 2024/25 profit forecast basically unchanged, and considering that the company's dividend yield remained high at 10% or more in 2024/25, and the dividend ratio increased, we raised our target price by 13% to HK$5.1, corresponding 7/6 times the 2024/25 price-earnings ratio and 18% upward space. The current share price is trading at 6/5 times the 2024/25 price-earnings ratio. Keep the “outperforming the industry” rating unchanged.

risks

New orders, gross profit margins, and dividends fell short of expectations.