We lowered our target price to HK$2.90, but reaffirmed our “buy” rating. We lowered Yuanda Sumi Industries (the “Company”)'s 2024/2025 earnings forecast to RMB -0.217/RMB 0.037, respectively, and made an initial earnings forecast of RMB 0.393 per share for 2026. We lowered our target price to HK$2.90, which is equivalent to 10.8x/ 8.0x/ 5.8x 2024/2025/2026 EV/EBITDA.
Net profit for shareholders in 2023 was RMB 389 million, and the results were worse than expected. 1) Total revenue in 2023 was RMB 2.01 billion, down 1.4% year on year, of which PC component manufacturing was RMB 1,913 billion, down 5.5% year on year; PC production equipment manufacturing was RMB 47 million, down 26.0% year on year; modular integrated product manufacturing was RMB 81 million, down 37.4% year on year; digital EPC was RMB 160 million, up 871.3% year on year. 2) The gross margin for 2023 was 24.3% (+7.6 percentage points), the expense ratio was 33.9% (-4.4 percentage points), and the balance ratio was 63.3% (-0.9 percentage points).
Net operating cash flow increased year over year in 2023, and accounts receivable and impairment losses decreased year over year. 1) Net operating cash flow in 2023 was RMB 580 million (2022: RMB 423 million). 2) The total net operating cash flow and investment cash flow was +RMB 476 million (2022: -RMB 41 million).
3) Accounts receivable decreased by 5.8% year on year to RMB 2,628 billion, and impairment losses decreased by 95.3% year on year to RMB 4 million.
The amount of new contracts signed in 2023 was RMB 2,969 billion, an increase of 25.3% over the previous year. 1) Among them, PC component manufacturing was RMB 2,650 million, up 35.9% year on year; modular integrated product manufacturing was RMB 82 million, down 64.3% year on year; digital EPC was RMB 238 million, up 24.8% year on year. The company continues to combine digital technology with the CPS+ intelligent management platform to improve the efficiency of intelligent construction solutions and solve pain points such as long construction cycles, high costs, and high resource consumption of traditional construction models. The company focuses on industrial park and campus development and provides quick implementation solutions. It has implemented more than 10 digital full assembly projects, including demonstration projects such as Beijing University of Traditional Chinese Medicine and Changde Economic Development Zone. 2) Cooperate with the “Belt and Road” initiative and actively expand the international market. In 2023, the company served more than 300 batches for overseas customers, and more than 40 projects entered the design and contract phase. Customized “Rubik's Cube” construction products were successfully launched in Saudi Arabia and Los Angeles, USA.
Risks: 1) Government infrastructure spending may fall short of expectations; 2) Overseas project risk.