Demand in revenue-constrained industries continued to pull back, and profitability recovered. The company achieved revenue of 1.51 billion yuan in 2023, down 17%, mainly affected by the downturn in the real estate industry, and weak demand in the design industry. At the same time, the company further contracted EPC business; net profit to mother was 160 million yuan, an increase of 44%. Revenue growth declined but performance increased significantly, mainly due to a further decrease in impairment charges, while gross margin continued to recover upward. By business segment, in 2023, the company achieved revenue of 11.2/1.9/1.6/0.3 billion yuan for architectural design/cost consulting/EPC/full-process consulting, construction management, and others, respectively, with year-on-year changes of -9%/-15%/-50%/-40%, respectively. Among them, revenue from the public building design business was 420 million yuan, an increase of 7%, accounting for an increase of 6 pct, indicating that the company is actively transforming its customer structure to hedge against declining real estate demand; revenue from the prefabricated building design business was 5.0 billion yuan, down 9% from the same period. In terms of orders, in 2023, the company signed a new contract of 1.55 billion yuan for architectural design, an increase of 2.5%, of which prefabricated design was 800 million yuan, a sharp increase of 43% over the previous year, accounting for 56%. The development of the prefabricated business was relatively smooth; cost consulting was 160 million yuan, a decrease of 23%; and full-process engineering consulting and other businesses were 40 million yuan, a decrease of 22%. In terms of per capita output value, after excluding the EPC business, the per capita output value in 2023 was 410,000 yuan, YoY+35,000 yuan. Although the total number of employees in the company decreased by 18% in 2023, the per capita output value continued to increase, operating efficiency continued to be optimized, and the decline in personnel costs is expected to lay a good foundation for performance recovery in 2024.

Gross margin increased markedly, expense ratios declined, and cash flow performance continued to be excellent. In 2023, the company's gross profit margin was 32.2%, up 3.0 pct from the previous year. The main reason was that the company increased cost control, while the share of low-margin EPC business declined further. Among them, the gross margin of the architectural design/cost consulting/EPC business was 35.1%/42.2%/1.0%, YoY+0.5/+3.8/-2.2pct, respectively. The cost rate for the period was 15.5%, a decrease of 0.5 pct. Among them, the sales/management/R&D/finance expenses ratio changed by +0.25/ -0.91/+0.14/ -0.01pct, respectively. The management expense ratio dropped a lot, mainly due to a reduction in the size of management personnel, labor cost control, reduction in litigation costs, and a reduction in depreciation expenses due to leasing of idle assets. Net profit margin increased 4.6pct to 10.7%. In 2023, the company's net operating cash flow inflow was 290 million yuan, an increase of 0.2 billion yuan over the previous year, continuing the trend of large net inflows; the net present ratio was 237%, YOY+59pct; the revenue ratio was 107%, YOY+5pct.

The strength of digital products continues to be strengthened, and the prefabricated business is expected to benefit from the advancement of the “three major projects”. In the digital business, the company continued to upgrade and optimize the BIM positive design platform Huayang Express Construction during the year, and CapoliBim, an online management platform for the entire construction industry chain developed independently. At the same time, based on digital transformation, the AI technology research and development process and iteration are being accelerated, and the strength of digital products is expected to be further strengthened in the future.

The prefabricated business already accounts for more than half of the company's related business, with strong technical strength and a high industrial position. Currently, the country is accelerating the construction of the “three major projects”. The company has nearly 20 years of project practice and product development experience in the fields of guaranteed housing and talent housing. The relevant prefabricated product portfolio is rich, and it is expected that policies will increase in the future.

The proposed dividend of 157 million will drive the dividend rate to 7.1%, and it is expected to maintain high dividend characteristics in the future. The company's dividend ratio for 2020-2022 is 45%/56%/52%, respectively. The proposed cash dividend for 2023 is 157 million yuan, and the current corresponding dividend rate is 7.1%. The main reason is that the company's cash flow is good and there is more cash on the account (monetary capital+transactional financial assets of 1.14 billion yuan at the end of 2023, 52% of the market value). Against the backdrop of low market wealth management returns and regulatory incentives to pay dividends, the company has strong dividend capacity and strong will. The company issued the “Shareholder Return Plan for the Next Three Years (2024-2026)”, which proposes that “the dividend distributed in cash every year of 2024-2026 shall not be less than 40% of the parent company's distributable profit achieved in the current year”, and the company is expected to maintain high dividend characteristics in the future.

Investment advice: We predict that the company's net profit for 2024-2026 will be 1.94/2.232/275 million yuan, respectively, up 20%/20%/19% year-on-year (2023-2026 CAGR is 19%), EPS will be 0.99/1.18/1.40 yuan, and the current stock price corresponding to PE will be 11/10/8 times, maintaining a “buy” rating.

Risk warning: real estate policy risk, risk of prefabricated and BIM business development falling short of expectations, risk of operating across regions, etc.