Core views:

The dividend payout ratio has exceeded 100% for 2 consecutive years, and the dividend payout value is high. The company released its 23rd annual report. In '23, the company achieved operating income of 3.3 billion yuan, an increase of 24.3% year on year; realized gross profit of 1.72 billion yuan, +24.0% year on year; realized net profit to mother of 970 million yuan, an increase of 30.8% year on year. The company paid 1.01 billion yuan in fiscal year 23, with a dividend payout ratio of 103.2%. For 2 consecutive years, the dividend ratio exceeded 100%, and the dividend rate was nearly 9%, taking into account growth and value. The company's overall gross margin in '23 was 52.2%, down 0.1% from the end of '22. Looking at the business structure, the gross profit margin for commercial construction was 52.3%, down 1.5% from the end of '22, and the gross profit margin for the government construction business was 45.2%, up 4.4 pct from the end of '22.

New contract construction costs exceeded 10 billion yuan for the first time, expanding steadily. In '23, the company's new development cost was 10.37 billion yuan, +20.5% over the same period last year. Looking at the client structure, private enterprises account for 30.7%, government units 9.3%, state-owned enterprises account for 48.9%, and financial institutions account for 11.2%. Using the year 21 as the dividing point, the share of private enterprises dropped by 11.8 pct, the share of government units decreased by 1.9 pct, the share of state-owned enterprises increased by 10.9 pcts, and the share of financial institutions increased by 2.7 pct. Urban investment support became the norm in the second half of '21, compounded by bailout claims. The scale of orders received by the company from state-owned enterprises and financial institutions increased significantly. In 2023, the company's state-owned enterprise construction fee was 5.07 billion yuan, and the financial institution's construction fee was 1.16 billion yuan. Both accounted for more than 60% of the total new development costs.

Profit forecasting and investment advice. The company's overall business is asset-light, high-growth, and high-dividends. The dividend rate has exceeded 100% for 2 consecutive years. Currently, the dividend rate is close to 9%, and the dividend ratio is at the leading level among listed companies. Considering that the company has currently signed a total of 28 billion yuan of unconfirmed contracts, calculated at a net interest rate of 25% to mother, implying a performance of nearly 7 billion yuan to be carried over, future performance growth is guaranteed. The company's net profit for 24-25 is estimated to be 1.22 billion yuan and 1.52 billion yuan, with year-on-year growth rates of +25% and +25%. Referring to the company's historical valuation center, give the company a 24-year PE = 15X, corresponding to a reasonable value of HK$9.98 per share; maintain a “buy” rating.

Risk warning. There is uncertainty in business operations, risk of failure to perform contracts, and impairment of goodwill.