Incident: The company released its 2023 annual report. In 2023, it achieved total operating revenue of 633.87 billion yuan, an increase of 6.95%; net profit to mother of 8.670 billion yuan, a year-on-year decrease of 15.63%; realized net profit of 7.554 billion yuan after deduction, a decrease of 21.90% over the previous year; and achieved a basic EPS of 0.33 yuan. It is proposed to distribute a cash dividend of 0.72 yuan (tax included) for every 10 shares, with a cash dividend ratio of 17.21% (an increase of 0.47pct over the previous year).

Revenue growth was steady throughout the year, and Q4 revenue declined year over year. In 2023, the company's total revenue achieved a positive year-on-year increase of 633.87 billion yuan (yoy +6.95%). On a quarterly basis, the company achieved year-on-year revenue growth rates of +22.39%, +11.00%, +23.20%, and -14.87% respectively in 2023Q1-Q4. The year-on-year decline in Q4 revenue dragged down the annual revenue growth rate. Looking at the business structure, the company's main businesses achieved revenue and growth in 2023: engineering contracting business of 585.482 billion yuan (yoy +9.33%), resource development business of 6.816 billion yuan (yoy -23.12%), specialty sector business of 31.98 billion yuan (yoy +0.16%), and comprehensive real estate business of 16.519 billion yuan (yoy -27.31%). The engineering contracting business accounted for 91.24% of revenue (-0.64pct year on year), being the main source of revenue. Resource development and comprehensive real estate business dragged down the overall revenue growth rate. Looking at the market structure, domestic business achieved revenue of 607.518 billion yuan (yoy +6.65%) in 2023, accounting for 95.84% (year-on-year -0.27pct); overseas business achieved revenue of 26.352 billion yuan (yoy +14.48%), accounting for 4.16% (+0.27pct year over year), and overseas business revenue grew rapidly.

Gross margin was basically stable, and the year-on-year increase in depreciation dragged down the growth rate of performance. In terms of gross margin, the company achieved a comprehensive gross profit margin of 9.69% in 2023, +0.05pct year-on-year. Among them, the gross margin of engineering contracting and specialty businesses increased by 9.09% (+0.25pct) and 15.81% (YoY +2.09pct), respectively. The year-on-year increase in gross margin of specialty businesses was mainly due to the company's strengthened cost and expense control; the gross margin of resource development (30.99%, -5.36pct yoy) declined year-on-year, mainly due to the impact of international bulk prices; and the gross margin of the comprehensive real estate business was 7.89%, -3.11pct yoy. In terms of cost ratio, the company's expense ratio for the 2023 period was 5.72% (+0.01pct year over year), with sales/management/R&D/finance expenses remaining flat at +0.01pct/+0.05pct/-0.05pct/ year on year, respectively. In terms of impairment, the company's asset and credit impairment losses totaled 8.949 billion yuan in 2023, a year-on-year increase of 80.35%, which dragged down the growth rate of net profit attributable to mother (yoy -15.63%). In terms of net interest rate and ROE, the company's net sales margin in 2023 was 1.80% (-0.38pct year on year); ROE (weighted) was 7.23% (-3.24pct year on year), mainly due to the decline in global demand for mineral resources.

Overseas orders have increased year-on-year, and the mineral resources business is expected to see a sharp rise in volume and price. In 2023, the company signed a total of 1424.779 billion yuan of new contracts, an increase of 6.04% over the previous year. Of these, the amount of new overseas contracts signed was 63.384 billion yuan, an increase of 43.72% over the previous year, a record high. As one of the country's key resource enterprises, the company's resource development business is currently mainly concentrated in the field of metallic mineral resources such as nickel, cobalt, copper, lead, and zinc. In 2023, the company strives to improve the development and operation level of its mineral resources. The resource development business achieved revenue of 6.818 billion yuan, and the gross margin was far higher than the company's overall profit level, reaching 30.99%. The total net profit attributable to China was 1,214 billion yuan. The total share of mineral resource revenue and net profit to mother was 1.06% and 14%, respectively. In addition, the company designed the Shandak copper and gold mine in Pakistan, which has a smelting capacity of 20,000 tons of crude copper, to be put into operation on January 9, 2024. It is expected that the company's actual mining volume will reach a new level in 2024. Combined with the recent rise in resource prices, the company's mineral resources business is expected to usher in a sharp rise in volume and price.

Investment advice: As a “national metallurgical construction team”, the company actively lays out the infrastructure and housing construction market on the basis of deepening the main business of traditional metallurgical engineering. The housing construction business is accelerated and optimized, and the infrastructure business continues to expand. At the same time, it lays out resource development business to help increase the company's performance and valuation. In overseas markets, the company continued to make efforts in the “Belt and Road” joint construction national market. It won the bid for the Guinean parliament building project and signed a number of new high-end housing construction projects such as the Cambodian Huanhai Platinum International Hotel, further increasing its influence overseas. We expect the company's 2024-2026 revenue to be 702.42 billion yuan, 770.631 billion yuan and 842,415 billion yuan, respectively, up 10.81%, 9.71% and 9.31% year-on-year, net profit to mother of 10.182 billion yuan, 11.261 billion yuan and 12.448 billion yuan respectively, up 17.44%, 10.60% and 10.53% year-on-year respectively, and dynamic PE 6.8, 6.2, and 5.6 times, respectively. The six-month target price is 4.17 Yuan, corresponding to 2024 PE is 8.5 times.

Risk warning: Infrastructure investment falls short of expectations, project payback falls short of expectations, overseas projects fall short of expectations, local finance has been tightened, industry competition has intensified, raw material prices have risen, and commodity prices have fluctuated.