The scale of revenue grew steadily, and the increase in expenses dragged down profits. It was downgraded to an “increase in holdings” rating. Jinpu Garden published its 2023 annual report, achieving operating income and net profit of 1.0 billion yuan/0.2 billion yuan, respectively, +2.4%/-71.8% year on year; gross margin and net margin were 30.6% and 2.8%, respectively, down 1.6 and 5.3 percentage points from the previous year. The main reasons for the decline in profitability are: (1) a high increase in financial expenses due to the issuance of convertible bonds; (2) a high increase in confirmed deferred income tax expenses after identifying high-tech enterprises. Due to increased expenses and reduced order reserves, we lowered 2024-2025 and added a profit forecast for 2026. We expect net profit to be 0.5, 0.7, and 80 million yuan (originally 2024 and 2025 was 1.0 million yuan and 130 million yuan), diluted EPS was 0.3, 0.4, and 0.5 yuan. The PE corresponding to the current stock price is 21.7, 16.6, and 14.8 times. Due to the declining market environment, the company's new orders, construction and settlement progress may be affected, and the rating was lowered to “increase holdings”.

There are plenty of on-hand orders to ensure steady revenue growth

The company's main business is engineering construction and landscape design, which together account for 99.4% of revenue. The 2023 mid-year bid and new contract amount for engineering and design projects was nearly 900 million yuan, a year-on-year decline of about 55%. However, as of the end of November 2023, the company had unfinished orders of about 1.8 billion yuan, and the order volume is still quite sufficient. The company's focused “five in one” business model can lock in profits earlier and ensure that the gross margin of carry-over projects remains stable. At the same time, a sufficient order volume can also guarantee the company's future revenue growth.

Accounts receivable age is rising, and operating cash flow needs to be improved

By the end of 2023, the company's accounts receivable were 1.46 billion yuan (provision for bad debts of 340 million yuan), an increase of 7.9% over the previous year.

Among them, the proportion of accounts aged within one year was 35.1%, down 9.7 percentage points from the beginning of 2023. Due to project payback falling short of expectations, the company's net operating cash flow in 2023 was -270 million yuan, -312.59% year-on-year. The company spent a total of 150 million yuan on expenses during the year, an increase of 7.2% over the previous year. Among them, management and R&D expenses decreased by 2.2% and 9.1% year on year, and financial expenses increased by 139.2% year on year due to the corresponding increase in amortization interest due to the issuance of convertible bonds during the period.

Share buybacks are used for equity incentives, demonstrating confidence in future development

The company announced on February 5, 2024 that it will use its own capital of 25-45 million yuan to repurchase some of the issued shares through centralized bidding transactions to implement equity incentives. As of March 29, 15.919 million yuan has been repurchased. This share repurchase shows the company's confidence in future development and recognition of its own value.

Risk warning: The scale of new orders falls short of expectations, capital pressure, and risk of bad debt losses.