Incident: The company released its 2023 annual report. During the period, the company achieved operating income of 2265.529 billion yuan, +10.20% year-on-year, realized net profit of 54.264 billion yuan, +6.50% year-on-year, and realized net profit of 48.539 billion yuan without return to mother, +7.3% year-on-year. It is proposed to pay a dividend of RMB 2.71 per 10 shares to all shareholders, with a dividend rate of 20.85% and a dividend rate of 5.64%.

Revenue grew steadily, and the Q4 performance growth rate increased dramatically. The company achieved revenue of 2265.529 billion yuan in the full year of 2023, +10.20% over the same period. The revenue growth rate increased by 1.66 and 1.43 pcts respectively in 2022 and the first three quarters of 2023. On a quarterly basis, 23Q1-Q4's revenue growth rates for each quarter were 8.12%, 2.20%, 17.52%, and 14.49%, respectively, and Q3 and Q4 revenue accelerated markedly. In 2023, the company achieved positive year-on-year revenue growth in all business segments. Housing construction engineering and infrastructure engineering were still the main components of the company's revenue, accounting for 61.08% and 24.57% respectively. Of these, infrastructure engineering revenue increased 0.56 pcts compared to the previous year, with revenue growth rates of 9.40% and 12.80% respectively. Real estate development and survey and design revenue increased 9.50% and 9.10%, respectively.

During the period, the company's net profit to mother and net profit without return to mother increased yoy +6.50% and 7.30%, respectively. The net profit growth rates for the 23Q4 single quarter and net profit without return to mother were as high as 43.12% and 35.15% year-on-year respectively, mainly due to the significant year-on-year decline in expense ratios during the 23Q4 period.

The expense ratio declined significantly during the period, and operating cash flow improved significantly. The company's overall gross margin during the period was 9.83%, -0.63 pcts year over year, mainly due to the year-on-year decline in gross margins of the three main businesses of housing construction engineering, infrastructure engineering and real estate development, which were 7.3% (-0.7 pcts year over year), 9.8% (-0.6 pct year over year), and 18.2% (-0.8 pct year over year), respectively. The company's cost rate control was effective, from 5.35% to 4.71%, -0.64 pcts year over year. Among them, the management cost rate, R&D cost rate, and financial expense ratio all declined year on year, -0.13, 0.14, and 0.39 pct year on year, respectively. The company's exchange losses decreased during the period, while management efficiency and R&D revenue improved significantly. The company's credit impairment and asset impairment losses during the period totaled 14.302 billion yuan, an increase of 754 million yuan over 2022, yoy +5.57%. The company's net interest rate in 2023 was 3.25%, -0.12 pct year over year, or mainly due to the decline in gross margin. The net cash flow from operating activities during the period was a net inflow of 11.030 billion yuan, compared to a net inflow of 3.829 billion yuan for the same period last year. Operating cash flow improved significantly, mainly due to the company's strengthened cash flow management and an increase in project payments, housing purchases, etc. collected in the current period.

The signing of new contracts has grown steadily, the housing construction business structure has improved, and infrastructure/overseas business has grown rapidly. The company signed new contracts worth 4.32 trillion yuan, yoy +10.8%. Among them, the growth rate of overseas business and infrastructure engineering business exceeded the overall level. Domestic and overseas new contracts were YOY +10.4% and 15.4% respectively, and new contracts for housing construction projects and infrastructure projects were YOY +8.8% and 15.1% respectively. Against the backdrop of pressure on the real estate industry, the company is actively improving the housing construction engineering business structure, shrinking real estate-related housing construction business, and maintaining steady growth in the housing construction business.

Looking at the company's housing construction business segment, the company's industrial housing construction projects achieved rapid growth during the period. The share of new contracts signed in the industrial plant sector increased from 15.82% to 23.12%, while the share of new contracts signed for residential projects increased from 15.82% to 23.12%, while the share of new contracts signed for residential projects shrank from 24.61% to 30.35%. In 2023, the amount of new contracts signed by the company for infrastructure projects increased by more than 15% year-on-year. Among them, the amount of new contracts signed for municipal engineering was +17.0% year-on-year, and orders for energy engineering and water conservancy and water transport projects increased exponentially. The company's gross margin of infrastructure projects in 2023 was higher than that of housing construction projects, at 9.8% and 7.3%, respectively. The increase in the share of infrastructure business is expected to help improve the overall gross margin level.

Profit forecast and investment suggestions: The company is a leading global construction engineering enterprise. The main business segments all achieved year-on-year growth in 2023, reflecting the operational resilience of leading enterprises, structural improvements in the company's housing engineering business segments, rapid growth in emerging infrastructure and overseas business, and long-term steady development can be expected. The reform of state-owned enterprises and the promotion of market value management of central enterprises are expected to help the company continue to improve its operating indicators and increase its valuation. The company's revenue for 2024-2026 is estimated to be 2446.772 billion yuan, 2630.280 billion yuan, and 2814.399 billion yuan respectively, up 8.0%, 7.5%, and 7.0% year-on-year respectively. Net profit to mother is 58.68 billion yuan, 63.469 billion yuan and 68.521 billion yuan, respectively, up 8.14%, 8.16% and 7.96% year-on-year, respectively, and dynamic PE is 3.8, 3.5, and 3.3 times, respectively, giving a “buy-A” rating, corresponding to a six-month target price of 7.05 yuan In 2024 PE is 5.0 times.

Risk warning: Infrastructure investment falls short of expectations, project payback falls short of expectations, overseas projects fall short of expectations, local finance has been tightened, and raw material prices have risen.