Incident: The company released its 2023 annual report. In 2023, it achieved operating income of 1,507 million yuan, a year-on-year decrease of 17.46%; net profit to mother of 161 million yuan, up 43.82% year on year; net profit after deducting net income of 129 million yuan, up 48.07% year on year; basic earnings per share of 0.82 yuan, up 43.81% year on year; distributed a cash dividend of 8 yuan (tax included) to all shareholders for every 10 shares, with a dividend rate of 97.21%.

The business structure has improved markedly, and the public construction business has been actively expanded. The company's revenue in 2023 was 1,507 billion yuan, yoy -17.46%, mainly due to the sharp contraction of the company's EPC and full-process consulting business. This business revenue yoy was -48.24%, the cost business revenue was -14.53% YoY, and the main design business revenue was -9.07% YoY. In 2023, the company's EPC business accounted for 6.79 pcts to 10.64% year on year, and design business revenue increased to 74.15%, +6.84 pcts year over year. The company's business structure has improved significantly, the low-margin EPC business has been actively reduced, and the high-margin design business has developed steadily. Against the backdrop of pressure on the downstream real estate industry, the company actively expanded the field of public construction. The residential building design and commercial complex design business were -13.19% and -24.62%, respectively, and the public building design business revenue was +7.08% year-on-year, and the revenue share increased to 27.88% (+6.39 pcts year over year). During the period, the company signed a new architectural design business contract worth 1,554 billion yuan, yoy +2.46%, and the design business showed full resilience.

Profitability increased year-on-year, and cash flow improved, and the dividend rate reached 97.21%. In 2023, the company's consolidated gross margin was 32.22%, up 3.01 pct year-on-year, mainly due to improvements in the business structure. The gross margin of each business segment varied greatly. The gross margin of the design business increased to 35.06% (+0.46 pcts year over year); the gross margin of the EPC business fell sharply to 0.96% year on year, to 3.16% in the same period last year; the cost and gross margin of the whole process consulting business increased, at 42.19% (+3.83 pcts year over year) and 29.47% (+9.54 pcts year over year), respectively. The company's expenses rate for the period was 15.52%, a year-on-year decrease of 0.54 pcts. The company's net interest rate was 12.56%, a sharp increase of 4.64 pcts year over year, mainly due to improved gross margin. At the same time, credit impairment losses decreased year on year. The company's credit impairment losses during the period were 31 million yuan (62 million yuan in the same period last year). The company's operating cash flow in 2023 was a net inflow of 287 million yuan, yoy +8.17%. As of the end of 2023, monetary capitals+transactional financial assets totaled 1,136 billion yuan, accounting for 34.81% of assets. In 2023, the company's dividend rate reached 97.21%, and the dividend rate was 5.73%, a significant increase from 2022 (47.57%, 2.28%), demonstrating the importance the company attaches to shareholder returns, and the long-term investment value is outstanding.

Deeply involved in construction technology and urban renewal, it is expected that it will fully benefit from the promotion of guaranteed housing and urban village renovation. The company continues to advance the “design+technology” strategy and strengthen research and development of prefabricated buildings, BIM, AI design and automated mapping technology. Jointly with Zhongwang Software to create BIM software with completely independent intellectual property rights, from the underlying geometric modeling engine to the application layer, to completely solve the autonomous controllability and software performance bottlenecks of domestic software, the development and launch of professional construction products has now been completed. In the field of urban renewal, since participating in the Shenzhen Dachong Village Renovation (Shenzhen Huarun City) project in 2007, the company has been deeply involved in the field of urban renewal for 16 years. Currently, it is participating in urban village renovation projects in the core areas of many megacities across the country, such as Shenzhen, Guangzhou, Dongguan, Hefei, and Changsha. Furthermore, as one of the earliest design enterprises in the country to complete the development of city-level guaranteed housing/talent housing products, since 2012, the company has carried out full-process research and product development for talent housing and guaranteed long-term rental apartments. During this period, it independently developed “Perfect and Beautiful Talent (Guaranteed) Housing products, and has a core competitive advantage in the field of talent housing and guaranteed housing. The “three major projects” are one of China's key construction promotion areas in 2024, and the company is expected to fully benefit from the promotion of guaranteed housing and urban village renovation and construction.

Profit forecast and investment suggestions: According to the company's new contract amount and execution cycle, we expect the company to achieve revenue of 1,659 billion yuan, 1,846 billion yuan, and 1,995 billion yuan respectively in each year of 2024-2026, up 10.1%, 11.2%, and 8.1% year-on-year increase, respectively, and achieve net profit of 197 million yuan, 217 million yuan and 233 million yuan, respectively. Dynamic PE is 11.7, 10.6 and 9.9 times, respectively, to maintain the “buy-A” evaluation Level, the target price for 6 months is 14.7 yuan, which is 14.6 times PE in 2024.

Risk warning: Large macroeconomic fluctuations; policy progress falls short of expectations; fixed investment falls short of expectations; the revenue growth rate of the survey and design industry in the province falls short of expectations; the share of revenue in Guangdong Province falls short of expectations; expansion outside the province falls short of expectations; progress in the construction technology business falls short of expectations; loss of personnel; decline in customer business conditions; industry competition increases risks, etc.