Incident: The company announced its 2023 results. The company achieved operating income of 3.302 billion yuan in 23, an increase of 24.3% year on year; achieved net profit of 974 million yuan, an increase of 30.8% year on year; achieved basic earnings per share of 0.50 yuan/share, an increase of 31.6% year on year.
Commercial construction drives high-quality performance growth, and dividends actively give back to shareholders' revenue. The company achieved operating income of 3.302 billion yuan in 23, an increase of 24.3% over the previous year. Among them, revenue from commercial construction, government construction, and other services was 23.46, 7.88, and 168 million yuan, respectively, +40.5%, +1.0%, and -18.4%, respectively, accounting for 71%, 24%, and 5% of total revenue, respectively. Commercial agency construction is growing rapidly, and its share contribution continues to increase. The government agency construction optimization model and revenue growth are relatively slow. On the profit side, the company achieved net profit of 974 million yuan in '23, an increase of 30.8% over the previous year. The company's gross profit margin was 52.2%, which is basically the same as in '22. Among them, the gross margins for commercial construction, government construction, and other services were 52.3%, 45.2%, and 82.2%, respectively, and -1.5, +4.4, and -1.8pct compared to '22, respectively. The decline in gross margin of commercial agency construction is mainly due to the increase in the share of clients of state-owned enterprises and financial institutions.
In '23, the company achieved a net cash flow of 955 million yuan from operating activities, +31.8% year-on-year, close to the net profit level and high revenue quality. The board of directors recommended paying a year-end dividend of $0.4 per share and a special dividend of $0.1 billion per share, totaling $1.05 billion, with a dividend ratio of 103.18% to actively give back to shareholders. The management made the following four performance guidelines for the company over the next three years: 1) maintain a compound revenue growth of at least 20%; 2) maintain the company's net profit margin level above 25%; 3) maintain a compound increase of 25% in net profit to the mother; 4) the dividend ratio is not less than 80%, and the growth prospects are good.
Xintuo bucked the trend and had plenty of sellable value
On the scale side, by the end of '23, the company's contract construction projects had been deployed in 29 provinces and 122 cities, with a total construction area of 120 million square meters, +17.9% over the same period last year. With a market share of 20.4% in 23 years, it maintained the number one position in the industry. By business, the business commissioned by the government, state-owned enterprises, private enterprises, and financial institutions was 0.32, 0.41, 0.38, and 0.088 billion square meters, respectively, accounting for 26.8%, 34.2%, 31.7%, and 7.3%, respectively. It is expected that government and state-owned enterprises will continue to expand. Looking at the subregions, the estimated total sellable value of major economic regional contract projects reached RMB 693.3 billion, accounting for 77.7% of the total saleable value. Among them, the Yangtze River Delta, the Bohai Rim, and the Beijing-Tianjin-Hebei, Pearl River Delta, and Chengdu-Chongqing economic zones account for 32.5%, 26.2%, 13.8%, and 5.2% respectively. The saleable value is abundant, and the performance settlement stability is strong.
On the development side, the company's Xintuo business bucked the trend in '23, with a total contract area of 35 million square meters, +25.0% year-on-year, and a CAGR of 24.4% in 21-23; of these, government, state-owned enterprise clients and financial institutions accounted for 74.7% of Xintuo contracts. The estimated cost of the Xintuo Construction Project was 10.37 billion yuan, +20.5% year-on-year, with a CAGR of 20.8% in 21-23; of these, the government, state-owned enterprise clients and financial institutions accounted for 69.4%. In addition to housing, Xintuo's business has added types such as industrial parks, public rental housing, and talent apartments, and the scope of business coverage continues to expand.
Organizational structure transformation to build a platform enterprise
In 2023, the company undertook more than 500 real-time management projects, making management more difficult. To this end, the company initiated corresponding organizational structure changes. By segmenting the original regional market, 5 regional/city companies were added to reduce the management radius, speed up service response, and improve customized service capabilities for clients. At the same time, in '23, the company accelerated the integration of subsidiary joint ventures and signed a supplementary cooperation agreement with Green View Holdings on the Zhejiang Greentown Era, incorporating 387 employees and 49 construction projects into the direct management system. Externally, the company launched the “Baichuan Plan” to introduce city partners through multiple cooperation models to attract excellent teams and high-quality construction projects.
Investment advice: The company has performed well in 23 years. As a leader in the contract construction industry, its market share continues to be high.
Considering the aggressive development of the company's business and good development opportunities in the commercial and government construction markets, we raised the company's net profit forecast for 2024-2025 from 11.23 billion yuan and 1,290 billion yuan to 1,219 billion yuan and 1,527 billion yuan, maintaining the “buy” rating.
Risk warning: business development falls short of expectations, uncertainty in business operation, uncertainty in policy regulation