Incident Overview: The company announced its 2023 annual report, achieving operating income of 5.353 billion yuan, -8.32%; achieving net profit of 698 million yuan, +2.08% year over year; in a single quarter, 2304 achieved operating income of 2,161 million yuan, -15.44% year over year; net profit to mother was 347 million yuan, +3.33% year on year, achieving net cash flow from operating activities of 499 million yuan, +2.03% year on year. Cash flow continued to improve, and profitability bucked the trend.

The business structure has been optimized, and business performance has been steadily improved. In 2023, the company continued to promote business transformation. The company's survey design and EPC and project management declined compared to the previous year, and the planning research/comprehensive inspection/digital intelligence business grew year-on-year. Looking at business segmentation, planning research/survey and design/comprehensive inspection/digital and smart business/low carbon and environmental protection business/EPC and project full process management, divided into VEEE {4.84/31.7/5.16/3.90/4.22/ 318 million, EE +7.72%/+32.3%/+17.83%/-22.31%/-4.71%, E interest rate +49.49%/42.23%/30.26%/47.76%/22.32%/17.33%; ratio +5.52 /+1.70/-2.11/+7.55/2.39/ -0.79pct. The gross margin of the digital and smart business increased significantly. We judge that this is the result of the company's main business structure optimization/project optimization, and a major breakthrough has been achieved in digital transformation. Taken together, the overall gross margin last year was 39.0%, +2.05pct year on year; the net profit margin was 13.33%, +1.18pct year on year, reflecting the results of the company's overall internal control, cost reduction and efficiency. The gross profit margin of 2304 company was 42.29%, +1.60pct year on year, +5.50pct month on month; net profit margin was 16.32%, +2.55pct year on year, and +6.75pct month on month, and profitability increased quarterly. It has a forward-looking layout with a low-altitude economy and has jointly won the bid for the Taicang project. The company has a forward-looking layout in the field of low-altitude economy: the company provides engineering consulting services for 113 transportation airports and 18 general airports; according to the company's 2023 report, the Ganzhou Low Altitude Economic Industrial Park designed by the company has become the only flight test base in the country built according to Class B general airport standards. Through the promotion and application of a series of low-altitude economic integration products such as “Lu Zhi Bao”, “Road Area Bao” and “Hangubao”, the company relies on the company's industry think tank (Beijing Civil Aviation Academy) + planning and design industry planning (company headquarters) + industry application (China Construction Aviation) to form a low-altitude economy business pattern from design consulting to implementation and application in the drone industry. According to the company's official WeChat account, the company recently won a bid for the construction and service project of a Taicang civilian drone test flight base. We believe that the company has strong qualification advantages in the field of civil aviation and low altitude economy: 1) comprehensive engineering design grade A qualification: 2) past civil aviation project performance (113 transport airports and 18 general airports); 3) comprehensive advantages such as industry think tanks, etc., which are expected to lead development in the early planning, design and operation stages of civil aviation and low-altitude economy in the future.

Digitalization is growing rapidly, and new businesses can be expected to grow in the future. Last year, the company's digital intelligence business and industry grew rapidly. Jiangsu Dinoni, a holding subsidiary of the company, developed the latest software products AIRoad2.0, VRRoad2.0, and EICAD5.0 to dig deeper into AI capabilities. At the same time, the company undertook multiple 10-million-level “smart construction management platforms”. Jiangsu Dinoni's new contract amount in 2023 increased by about 70% year on year, and revenue increased by more than 100% year over year; in terms of low carbon environmental protection, the company focused on the photovoltaic field, and carried out new exploration of energy integration and building photovoltaic integration. Multiple green and low-carbon projects. We believe that promoting the digital and intelligent transformation of the planning and design industry and improving design efficiency is a new opportunity for the future development of the industry. It is expected that with the new technology in the industry, the company's new business growth will be significantly reflected.

Investment advice

Considering the current pace of overall domestic economic recovery, the company's business restructuring and internal control have achieved excellent results. We lowered our 2024-2025 revenue forecast of 56.59/5.907 billion yuan (original 6434/6.923 billion yuan), maintained the net profit forecast of 760/827 million yuan, and added 2026 operating revenue/net profit/EPS forecast, respectively, of 6.174 billion yuan/890 million yuan/1.30 yuan, EPS 1.11/1.21/1.30 yuan, corresponding to the closing price of 8.11 yuan on April 11 7.3/6.71/6.23x PE, maintaining a “buy” rating.

Risk warning

Demand falls short of expectations, software product market expansion falls short of expectations, and systemic risks.