Event: The company released its 2023 annual report.

Performance has grown steadily, and the amount of new contracts signed for energy projects has increased significantly. In 2023, the company achieved revenue of 74.193 billion yuan, an increase of 2.62%, net profit to mother of 2,939 billion yuan, an increase of 2.92%, and net profit after deducting net income of 2,713 billion yuan, an increase of 10.35%. By industry, the construction industry achieved revenue of 61,360 billion yuan, an increase of 3.11%; the infrastructure operation business achieved revenue of 5.972 billion yuan, an increase of 20.85%; digital information achieved revenue of 317 million yuan, an increase of 2.07%; design services achieved revenue of 2,565 billion yuan, a decrease of 3.85%; the investment business achieved revenue of 2,863 billion yuan, a decrease of 22.92%; and financial leasing achieved revenue of 432 million yuan, a decrease of 6.50%. In 2023, the company signed a total of 95.38 billion yuan of new construction, design and operation business orders, an increase of 14.11% over the previous year. In the construction business, rail transit/municipal engineering/energy engineering/road engineering/real estate engineering/other projects were +14.3%/+18.11%/+106.22%/-35.90%/+39.6%/+111.30%, respectively. The amount of new contracts signed for the design business/operation business was +9.29%/+17.07%, respectively.

The gross margin of the investment business has increased dramatically, and investment cash flow has improved. The company's gross margin in 2023 was 10.28%, down 2.69pct year on year. Among them, the gross margin of machining and manufacturing/investment business was 6.17%/43.60%, respectively, +2.86pct/+10.34pct, respectively, and the gross margin of construction business/design services/infrastructure operation/ digital information/ other businesses was -1.52pct/-8.48pct/-7.54pct/-0.68pct/-1.58pct, respectively. The company's net profit margin in 2023 was 4.28%, down 0.31pct year-on-year. In 2023, the company's sales/management/finance/R&D expenses were +32.86%/+11.26%/+17.65%/+10.81%, respectively. The increase in sales expenses was mainly due to an increase in payment agency fees, and the increase in financial expenses was mainly due to an increase in interest expenses due to the expansion of the supply chain. The company's net operating cash flow in 2023 was 3.178 billion yuan, down 21.45% from the same period last year, mainly due to an increase in expenses such as purchasing goods; net investment cash flow was -1,738 billion yuan, which was 41.85% lower than the same period last year, mainly due to a decrease in the purchase and construction of fixed assets; net cash flow from financing activities was -646 million yuan, which was negative compared to the same period last year, mainly due to a decrease in loans obtained.

Capital increases and acquisitions enrich the water infrastructure sector, and the value of data elements has been recognized by the market. In 2023, the company continued to promote the optimization and adjustment of the industrial structure, and sector integration to the next step. The company increased its cash capital to its subsidiary Urban Environment Group by 700 million yuan, and completed the acquisition of 100% of the shares of Urban Construction Water Company and Water Construction Company under the Urban Construction Group, which is the controlling shareholder, making up an important part of the company's water infrastructure sector.

During the reporting period, the company successively established regional headquarters such as Zhejiang Chengkai Construction and Development (Group) Co., Ltd. and Shanghai Urban Construction (Guangdong) Construction and Development Group Co., Ltd. to set up smart operation science and technology innovation centers; the company's subsidiary Chengdun Tunnel Safety Company introduced external strategic investors to accelerate the pace of market development in key regions for underground engineering emergency maintenance business. In 2023, the company achieved an important breakthrough in the digital information business. Digital Group launched projects such as BIM full-life big data management platforms and smart expressways in regional markets such as Shaoxing; the operating group's “low-speed work vehicle time and space” data was traded for the first time on the Shanghai Digital Exchange, and the value of the data elements was recognized by the market.

Investment advice: The company's 2024-2026 revenue is expected to be 802.26 billion yuan, 88.041 billion yuan, and 98.01 billion yuan, respectively, up 8.13%, 9.74%, and 11.31% year-on-year, net profit to mother is 3.181 billion yuan, 3.462 billion yuan, and 3.787 billion yuan, respectively, and EPS is 1.01 yuan/share, 1.10 yuan/share, and 1.20 yuan/share. The PE corresponding to the current stock price is 6.82 billion yuan, respectively. Times, 6.27 times, and 5.73 times, maintaining the “recommended” rating.

Risk warning: Risk of order fulfillment falling short of expectations; risk of accounts receivable recovery falling short of expectations.