Incident: In 2023, the company achieved operating income of 1,507 billion yuan, a year-on-year decrease of 17.46%; net profit to mother was 161 million yuan, up 43.82% year on year; net profit after deduction was 119 million yuan, up 48.07% year on year. The reviews are as follows:

Q4 Profits improved significantly, and business revenue in East China increased. By industry, revenue from design business, engineering cost consulting, general engineering contracting, and full-process engineering consulting achieved revenue of 11.17, 1.91, 1.60, and 31 million yuan, respectively, with a decrease of 9.07%, 14.53%, 49.61%, and 39.73%, respectively. By region, South China, Central China, East China, and Southwest China achieved revenue of 12.59, 1.34, 0.81, and 0.17 billion yuan respectively, up -19.65%, -13.27%, 19.21%, and -24.14%, respectively. On a quarterly basis, the company's 2023Q1, Q2, Q3, and Q4 revenue decreased by 31.68%, 7.48%, 20.02%, and 14.35%, respectively. Net profit to mother increased by 208.83, -7.03%, -10.67%, and 170.05%, respectively. Net profit after deducting net profit to mother increased 19.47%, -10.11%, -12.21%, and 183.87%, respectively; net interest rates for the single quarter were 0.46%, 15.61%, 22.79%, and 8.57%, respectively.

Gross margin rose, net profit margin increased, and net operating cash flow inflow increased. In terms of gross margin, gross margin increased by 3.01 pcts to 32.22% in 2023. Among them, gross margins for design business, engineering cost consulting, general engineering contracting, and full-process engineering consulting increased 0.46, 3.83, -2.2, and 9.54 pcts, respectively. In terms of the period cost ratio, the cost rate for the 2023 period decreased by 0.54 pcts to 15.52%, of which the sales expense ratio increased by 0.25 pcts to 2.70%; the management expense ratio (including R&D expenses) decreased by 0.77 pcts to 12.56%; and the financial expenses ratio decreased by 0.01 pcts to 0.26%. The total asset and credit impairment was 57 million yuan, a year-on-year decrease of 40 million yuan. In terms of net interest rate, net interest rate increased 4.64 pcts to 12.56% in 2023. The net operating cash flow in 2023 was 287 million yuan, and the inflow increased by 122 million yuan; of these, revenue increased 5.2 pcts to 107.16%, and current payments decreased by 6.53 pcts to 33.52% compared to the same period.

BIM software has been continuously upgraded and optimized, and the dividend ratio has increased dramatically. In 2022, the company and Zhongwang Software jointly established a joint venture to jointly develop domestic BIM (Building Information Modeling) software. The company continues to upgrade and optimize the BIM forward design platform - Huayang Express Construction. It has gradually built BIM forward design capabilities for all specialties such as architecture, structure, water supply and drainage, HVAC, electrical, prefabricated, and interior, raising the granularity of control to the parameter level. The company issued the “Shareholder Return Plan for the Next Three Years (2024-2026)”. The dividend distributed by the company in cash every year of 2024-2026 is not less than 40% of the parent company's distributable profit for the current year. The amount of the company's cash dividend for 2023 is estimated based on the company's total share capital of 196040,562 shares as of December 31, 2023. It is estimated that cash dividends will be paid out of 157 million yuan, a dividend rate of 97% for 23, and 45%, 56%, and 52% for 2020 to 2022, respectively.

Profit forecasting and ratings. The company's traditional design business benefits from increased downstream concentration and increased collection efforts, and prefabricated design benefits from high industry prosperity and its own first-mover advantage. The company continues to increase investment in BIM R&D, and the business is expected to maintain steady growth in the future. We expect the company's 24-25 EPS to be 0.97 and 1.12 yuan, respectively, with a price-earnings ratio of 16-18 times in 2024, and a reasonable value range of 15.52-17.46 yuan, maintaining the “superior to the market” rating. Risk warning. Payback risk, business development risk, policy risk.