The company specializes in green building inspection, urban planning, architectural design and other technical consulting services. The company is backed by the Shenzhen State-owned Assets Administration Commission and was founded in 1992. Formerly known as the Shenzhen Institute of Building Science, it is a public institution of the Shenzhen Municipal Planning Bureau. Deeply involved in green construction for 30 years, focusing on the two major sectors of “technical services such as planning and design” and “public trust services such as inspection and inspection”. With Shenzhen and Xiong'an as dual headquarters, it is deeply involved in the “Green Xiong'an” strategy, radiating the Guangdong-Hong Kong-Macao Greater Bay Area, the Beijing-Tianjin-Hebei urban agglomeration, and the Sichuan and Chongqing urban agglomeration.

Non-recurring profit and loss contributed to an increase in fourth quarter results, and net profit attributable to mother for the whole year reversed the cumulative loss. In 2023, it achieved operating income of 416.144 million yuan, a year-on-year decrease of 12.2%, and realized net profit of 236.26 million yuan, a year-on-year decrease of 67.7%, after deducting net profit loss of 287.18 billion yuan, a sharp decrease of 197.3% over the previous year. The main reason was that the fair value assessment of the company's self-built and self-operated future buildings added 44.996 million yuan at the end of the reporting period, and the transfer of shares in the subsidiary Shenzhen Jiuyi confirmed investment income of 7.865 million yuan, and confirmed a government subsidy of 5.401 million yuan. On a quarterly basis, Q1/Q2/Q3/Q4 revenue was 5931.7/10323.7/151.05 million yuan, respectively, +0.68%/-0.09%/-31.8%/-6.3%, and realized net profit to mother was -3851.7/621.5/152.8/668.29 million yuan, respectively, year-on-year

-71.6%/-206.4%/-95.3%/+17.0%.

Profit levels have declined, and R&D and financial expenses rates have risen markedly. In terms of profitability, the company's 2023 weighted ROE was 3.91%, down 9.04pct year on year, gross profit margin was 28.02%, down 9.24pct year on year; the cost ratio for the period was 33.56%, up 3.46pct year on year. Among them, the sales/management/R&D/finance ratio was 7.97%/12.08%/9.78%/3.73%, respectively, -0.78/-0.48/+1.68/+3.04pct. The increase in R&D expenses was mainly due to the increase in R&D labor costs, material costs, etc. in the current period, and the increase in financial expenses Due to securing capital, increasing short-term loans for working capital, and charging interest on special fixed asset loans after completion and acceptance of future buildings; in terms of asset structure, the balance ratio was 55.8%, up 1.15 pct from the previous year; in terms of cash flow, net cash from operation/investment/financing activities was -6540/-2277/+20.99 million yuan, respectively, less inflows of 78.2/fewer outflows of 2218.2/more of 95.38 million yuan compared to 2022. The net cash outflow from investment and construction decreased compared to future buildings. Decrease, the sharp net inflow of financing cash was mainly due to an increase in working capital loans.

The 2023 results are clearly under pressure, mainly due to the declining boom in the real estate industry, where the main business belongs, and the future building operation model of investment real estate still needs to be explored. The Future Building is independently designed, built and operated by the Academy of Construction and Science. It integrates multiple functions such as R&D offices, exhibitions, training, experiments, low-carbon transactions, and residences. It is a positive response to the country's “double carbon” strategy and an exploration of a high-quality development path for the construction industry. Currently, the operating model of the future building, the use of the space area, and the rental plan are all in the debugging and exploration stage. Looking forward to the future, on the one hand, the company's main business focuses on green buildings, which has a certain competitive advantage; on the other hand, if the building operates smoothly in the future, it will greatly ease the pressure on performance, and the company is also actively exploring overseas market needs. It is planned to achieve zero breakthroughs in overseas business by 2024, which is expected to inject new impetus into the company's development.

Lowering profit forecast: 1) 2023 results are under pressure, and performance pressure will still exist until future buildings are on the right track of operation; 2) Under factors such as interest on special fixed asset loans and increased short-term loans, there is still upward pressure on the cost rate. As a result, net profit attributable to mother in 2024/2025 was lowered to 0.53/0.62 billion yuan (previous value was 0.771/084 million yuan), up 124.9%/16.7% year on year, earnings per share 0.36/0.42 yuan (previous value was 0.48/0.57 yuan), and the profit forecast for 2026 was added. Net profit to mother is expected to be 73 million yuan, up 17.4% year on year, and 0.5 yuan per share.

Investment advice: Lower the profit forecast and lower the rating to a “neutral” rating. The company is deeply involved in the green construction industry. Due to the unspeakable optimism of the real estate market, the company's main business expansion is under pressure. Future buildings are not on the right track of operation after completion. Non-recurring profit and loss contributed to an increase in fourth quarter results, and net profit returned to mother throughout the year. Subsequent performance improvements mainly depend on whether future buildings can get on the right track of operation and whether overseas business can achieve zero breakthroughs. The company's 2024-2026 net profit is expected to be 0.53/0.62/73 billion yuan, with earnings per share of 0.36/0.42/0.50 yuan. The company's reasonable valuation is 12.5-13.2 yuan, a 6.3%-12.2% premium over the current stock price, and downgraded to a “neutral” rating.

Risk warning: Policy implementation falls short of expectations; market competition intensifies; the company's new signing, execution, and settlement progress falls short of expectations; the company's future building operation risks; R&D investment is difficult to transform into technological results, etc.