The company released its 2023 annual report. The company's revenue in 2023 was 1,507 billion yuan, a decrease of 17.46%; net profit to mother was 161 million yuan, an increase of 43.82%; and EPS was 0.83 yuan, an increase of 43.81%. In 2023, the company's business structure and layout continued to be optimized, and profitability increased; the company has pioneering advantages in prefabricated construction and BIM technology, and future growth can be expected. Maintain the company's buy rating.

Key points to support ratings

Revenue declined, and net profit to mother bucked the trend. In 2023, the company's revenue was 1,507 billion yuan, down 17.46%; net profit to mother was 161 million yuan, an increase of 43.82% over the same period, achieving contrarian growth. 2023Q4's revenue was 453 million yuan, down 14.35%; net profit to mother was 0.2 billion yuan, up 170.05% from the same period. In 2023, the company's net operating cash flow was 287 million yuan, an increase of 8.17%. The net operating cash inflow exceeded 200 million yuan for four consecutive years. 2023Q4's net operating cash flow was $317 million, a decrease of 10.26%.

The company's profitability has increased, and its ability to control expenses has improved. In 2023, the company's gross profit margin was 32.22%, up 3.01 pct; net profit margin was 10.71%, up 4.57pct; the period expense ratio was 15.52%, a decrease of 0.54 pct. Among them, the sales/management/R&D/finance expense ratio changed 0.25/ -0.91/0.14/-0.01pct, respectively. Overall cost control capabilities have improved.

The business structure and layout continued to improve, and per capita profit generation increased dramatically. In 2023, the company signed a new contract amount of 1,554 billion yuan for its architectural design business, an increase of 2.46% over the same period. The amount of new prefabricated construction orders signed in architectural design was 888 million yuan, a significant increase of 42.85% over the previous year. In 2023, the company signed a new cost consulting business order amount of 164 million yuan, a decrease of 22.63%; a total engineering consulting contract amount of 37 million yuan was signed, a decrease of 22.01%. In 2023, the share of revenue from the engineering general contracting business with low gross margin fell further to 10.64%, a decrease of 6.79pct; moreover, the company's business was concentrated in the South China region, which has good economic development, and has established good cooperative relationships with government units such as the Shenzhen Construction Works Department and the Shenzhen Housing and Construction Bureau, brand developers such as China Resources and Poly, and well-known enterprises such as DJI and OPPO. The company's personnel size was further reduced. At the end of 2023, the total number of employees in the company was 3,281, a decrease of 18.24%. However, per employee income generation and per capita profit generation both increased year-on-year. In 2023, the per capita income of employees was 459,200 yuan, an increase of 0.95%; the per capita profit was 492,000 yuan, a significant increase of 75.71% over the previous year.

Continue to strengthen research on prefabricated buildings and BIM technology to consolidate technical advantages. The company is one of the first companies to carry out prefabricated building design and BIM technology research, and has a first-mover advantage; in the future, the company will continue to strengthen research and development in the fields of prefabricated buildings, BIM, AI technology, etc., to consolidate its technical advantages.

valuations

The company's profitability has improved. Considering the recovery of the real estate industry, it remains to be seen. We should adjust our performance expectations. The company's revenue for 2024-2026 is estimated to be 16.4, 17.7, and 1.88 billion yuan; net profit to mother of 2.0, 220, and 260 million yuan; and EPS of 0.99, 1.14, and 1.31 yuan. Maintain the company's buy rating.

The main risks faced by ratings

The growth rate of prefabricated buildings declined, the recovery in downstream demand fell short of expectations, and the results of business expansion fell short of expectations.