Incident: The company announced that it achieved revenue of 1,507 million yuan, a decrease of 17.46%; achieved net profit of 161 million yuan, an increase of 43.82%; and realized net profit without deduction of 129 million yuan and a 48.07% increase of 48.07%. The company's cash dividend ratio in 2023 reached 97.21%, and the dividend ratio of 0.8 yuan/share corresponding to the closing price on March 29 reached 6.80%.

The revenue structure has been continuously improved, and the profitability of the consulting business has increased. On a quarterly basis, the company's Q1-Q4 revenue was 2.57/4.47/3.48/453 million yuan, respectively, a year-on-year change of -31.68%/-7.48%/-20.02%/-14.35%; the company's Q1-Q4 net profit to mother was 0.04/0.66/0.69/ 0.22 billion yuan, respectively, with a year-on-year change of 208.83%/-7.03%/-10.67%/170.05%, respectively. By business, in 2023, the company's architectural design, cost consulting, and general engineering contracting achieved revenue of 11.17/1.91/160 billion yuan, a year-on-year change of -0.97%/-14.53%/-49.61%, and the revenue share of general engineering contracting business was 10.64% and a decrease of 6.79pct; the gross margins of architectural design, cost consulting, and general engineering contracting businesses were 35.06%/42.19%/0.96%, respectively, with year-on-year changes of 0.47pct/3.83pct/-2.20pct, respectively.

Increased gross profit and reduced accruals drive increased profitability. In 2023, the company's gross sales margin was 32.22%, up 3.02pct; the period expense ratio was 15.52% and decreased by 0.54 pct; among them, the company's sales/management and R&D/finance expense ratios were 2.70%/12.56%/0.26%, respectively, with a year-on-year change of 0.25pct/-0.77pct/-0.01pct; asset and credit impairment loss ratio of 3.79% decreased by 1.55pct; net cash flow from operating activities during the period was 287 million yuan In the same period last year, it was 265 million yuan, an increase of 0.2 billion yuan over the same period last year; revenue increased 5.2 pct from 107.16%; current payment ratio decreased by 6.53 pct; the size of the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, accounts payable and notes, accounts receivable and contract liabilities as of the end of 2023 was 4/3/3/5 billion yuan respectively, a year-on-year change of -26.52%/37.72%/17.73%/0.81% from the beginning of the year.

Design orders are increasing steadily, and it is expected that they will continue to benefit from the transformation of urban villages. In 2023, the amount of new contracts signed by the company for architectural design, cost consulting, and full-process engineering consulting services was 15.53/1.64/037 billion yuan, respectively, with year-on-year changes of 2.46%/-22.63%/-22.01%. Among them, newly signed prefabricated designs accounted for 56.49% of architectural design business contracts, and the contract amount increased by 42.85% over the same period last year. The Central Economic Conference held at the end of 2023 emphasized the need to accelerate the “three major projects” such as affordable housing construction, “normal and emergency dual-use” public infrastructure construction, and urban village renovation. Since the renovation of the old village of Dachong, Shenzhen (Shenzhen Huarun City) in 2007, the company has been deeply involved in the field of urban renewal for 16 years. As of 2023, it has participated in urban village renovation projects all over the country, such as Shenzhen, Guangzhou, Dongguan, Hefei, and Changsha. The company firmly promotes the “design+technology” strategy. With the advancement and implementation of the 2024 renovation plan, the company, as one of the first participants in the urban renewal system and design collaboration system, is expected to continue to benefit from policy advancement and open up room for large-scale growth.

Investment advice: We expect the company to achieve operating income of RMB 1,36/14.03/1,543 million yuan and net profit of RMB 1.83/2.06/235 million yuan in 2024-2026. The closing price on March 29 was 12.60/11.17/9.83 times PE, respectively, maintaining the “gain” rating.

Risk warning: Macroeconomic downturn risks, technological progress falls short of expectations, and the market competition pattern worsens.