Event: The company publishes its 2023 annual report.

Performance has been growing steadily, and new contracts have been growing steadily. In 2023, the company achieved operating income of 9.059 billion yuan, a year-on-year increase of 12.68%, achieved net profit of 425 million yuan, an increase of 10.35% over the previous year; realized net profit after deduction of 289 million yuan, an increase of 10.89% over the previous year. Among them, engineering design revenue was 4.674 billion yuan, up 1.59% year on year, accounting for 51.60% of revenue; engineering contracting revenue was 3,580 billion yuan, up 35.70% year on year, accounting for 39.52% of revenue. In 2023, the company signed a total of 12.372 billion yuan of new contracts, an increase of 3.66% over the previous year. Among them, design consulting contracts amounted to 7.031 billion yuan, a year-on-year decrease of 4.52%; engineering contracting contracts amounted to 5.341 billion yuan, an increase of 16.83% over the previous year. Nationalized market development was clearly affected by the external environment. In 2023, the company signed new overseas contracts worth 3,879 billion yuan, a year-on-year decrease of 11.59%.

Gross margin declined slightly, and cash flow improved. The company's consolidated gross margin in 2023 was 23.42%, down 0.46pct from last year; the net profit margin was 5.11%, down 0.41pct from last year. Among them, the gross margin of the company's engineering design sector in 2023 was 33.63%, up 2.60 pct from last year; the gross margin of the engineering contracting division was 6.94%, down 1.08pct from last year; and the gross margin of the engineering technology consulting, management and investigation division was 38.47%, up 3.21 pct from last year. In 2023, the company's net operating cash flow inflow was 457 million yuan, a year-on-year decrease of 1.01%; the net cash flow from investment activities was 52 million yuan, an increase of 117.49% year-on-year, mainly due to an increase in cash received from investment recovery in the current period compared to the same period of the previous year. At the same time, cash payments decreased compared to the same period of the previous year, and the scale of stock investment decreased.

Focus on the Yangtze River Delta market and seize opportunities for urban renewal. In 2023, demand in the urban renewal market continued to expand. According to the Shanghai Municipal Committee and Municipal Government's deployment requirements to accelerate the city's urban renewal and sustainable development work, the company made every effort to seize urban renewal and construction opportunities, focus on the local market in Shanghai, and develop key strategic areas. The total amount of new contracts signed in the Shanghai local market was 8.41 billion yuan throughout the year, accounting for 68% of the total number of new contracts signed, an increase of 11.5% over the previous year. The company participated in 63 major annual construction projects in Shanghai, promoting the implementation of a large number of key projects such as Oriental Hub (East Railway Station), Pudong International Airport T3 Terminal, North Bund Core Area Functional Enhancement, World Expo Cultural Park, World Top Scientists Forum Site, Sanlin Binjiang Area, and Jinshan Legoland; focusing on serving “Yangtze River Delta integration” to accelerate the formation of territorial teams and strengthen integration into the local market. In 2023, the company signed a total of 1,796 billion yuan in contracts in the Yangtze River Delta region (other than Shanghai), accounting for 46.29% of overseas contracts.

The main projects signed include the Ningbo Hub Air and Rail Integrated Transport Center (GTC) project, the Hefei Advanced Light Source Infrastructure Project, the comprehensive protection project for the Sanwei Bookhouse Area in Lu Xun's hometown, and the Anhui Branch of Shuguang Hospital of Shanghai University of Traditional Chinese Medicine. The company continues to polish the gold signs of time-honored brands such as “East China Institute” and “Shanghai Institute”, and continues to build the brand image of “Chinese Design+Shanghai Service” as an industry-leading engineering consulting enterprise, which is expected to benefit from the market opportunities brought about by urban village renovation.

Investment advice: The company's 2024-2026 revenue is expected to be 9.884 billion yuan, 11.059 billion yuan, and 12.707 billion yuan respectively, up 9.11%, 11.88%, and 14.90% year-on-year respectively. Net profit to mother is 490 million yuan, 553 million yuan, and 625 million yuan respectively, up 15.28%, 12.87%, 13.06% year-on-year, and EPS is 0.50 yuan/share, 0.57 yuan/share, and 0.64 yuan/share. The PE corresponding to the current stock price is respectively 10.61 times, 9.40 times, and 8.32 times, maintaining the “recommended” rating.

Risk warning: Risk of order fulfillment falling short of expectations; risk of accounts receivable recovery falling short of expectations.