23H2's performance is clearly under pressure. We are optimistic about overseas business expansion and business structure optimization. In '23, the company achieved operating income of 16.506 billion yuan, +5.04% year on year, and realized net profit of 548 million yuan, or -21.59% year on year, net profit of 488 million yuan after deducting non-return to mother net profit of 488 million yuan, or -27.02% year on year. Looking at a single quarter, 23Q4 achieved revenue of 4.953 billion yuan, +7.54% over the same period, and net profit of 0.13 billion yuan. Since the second half of the year, the performance has clearly been under pressure. We judge that this is mainly due to the fact that the expansion of the patent licensing business with a gross profit margin of 100% in 2008 fell short of expectations, while the gross margin of the main business declined. In addition, the company's cash flow improved markedly in '23, and the cash dividend ratio increased to 21.8%, +12pct year-on-year. The company's goal is to sign new orders at least +10% year over year. We believe that the company's subsequent overseas business expansion is expected to accelerate (revenue/orders grew rapidly in 23 years), and the business structure is expected to continue to be optimized.

Industry and public buildings have maintained steady growth, and the patent licensing business still has room to rise. Looking at business segments, the company's industrial construction, public construction, and EPC business achieved revenue of 111.7 billion yuan, 31.3, and 1.76 billion yuan respectively in '23, +12.7%, +12.7% year-on-year respectively. The gross margins were 12.0%, 12.9%, and 12.1%, respectively, and -0.6, -1.4, and -0.5pct, respectively. New contracts of 20.27 billion yuan were signed throughout the year, +8% compared to the same period last year. Among them, new contracts for industrial buildings, public buildings, EPC and prefabricated buildings were signed at RMB 100.8, 61.4, and 3.31 billion yuan respectively, which was +18.8%, -12.2%, and +16.2% year-on-year respectively. New orders in 24Q1 maintained a good growth trend, +10.8% over the same period last year. In terms of the joint venture chain, the company's patent licensing business revenue in '23 was 26.49 million yuan, compared to -72%, with a gross profit margin of 100%. At the end of '23, it developed prefabricated technology franchise partners in 19 regions, undertook nearly 400 million yuan in steel structure projects, and developed 7 joint venture partners to achieve a contract amount of 550 million yuan. 24Q1 added a prefabricated technology franchise partner in Chongqing, with a contract amount of 40 million yuan. In terms of overseas business, the company signed new overseas industrial construction orders of 730 million yuan in '23, +188.8% over the same period, and achieved revenue of 1.28 billion yuan, +17% compared to the same period. In 24Q1, 500 million yuan of new overseas orders were signed, which has exceeded 60% of the full year of '23.

Profitability was phased under pressure. For the first time in three years, cash flow was corrected to the 23 year gross margin of 12.45%, -1.14pct year on year, and the period expense ratio was 8.7%, +0.13pct year over year. Among them, sales, management, R&D, and financial expenses ratios were +0.13, +0.07, +0.19, and -0.25pct year over year, respectively. The increase in interest income led to a decrease in financial expenses. The total asset and credit impairment losses of the company in '23 were 143 million yuan, a year-on-year decrease of 51 million yuan. The net interest rate under comprehensive influence was 3.46%, -1.1 pct year on year. The net net CFO of the company in '23 was 471 million yuan, with a year-on-year increase of 641 million yuan. The revenue ratio and cash out ratio were -4.5 and -10.4 pct year-on-year, respectively, to 80.24% and 74.7%.

Subsequent marginal improvements are worth looking forward to, maintaining a “buy” rating

Considering that the company's profitability has clearly been under pressure since the second half of '23, and its performance falls short of our previous expectations, we expect the company's net profit to be 6.2, 6.8 billion yuan, and 760 million yuan (24-25 years ago), respectively, +12%, +11% year-on-year, respectively. From a valuation perspective, by the close of April 17, the company's PE (TTM) was 9.7 times higher, maintaining a “buy” rating.

Risk warning: Industry sentiment continues to decline, steel prices fluctuate greatly, ongoing orders fall short of expectations, and project repayments fall short of expectations.