2023 results fall short of our expectations

The company announced its 2023 results, achieving revenue of 16.506 billion yuan, up 5.7% year on year; achieving net profit of 548 million yuan, a year-on-year decrease of 22.3%; 4Q23 achieved revenue of 4.953 billion yuan, up 7.54% year on year; realized net profit to mother of 13 million yuan, a decrease of 73.4% year on year; performance fell short of our expectations due to demand pressure compounded by intense market competition.

The company's gross margin fell by 1ppt to 13.0% in 2023, mainly due to slowing demand and fierce market competition; the sales/management expense ratio was 1.1%/3.2%, which was basically the same as in 2022. The R&D expenses rate increased by 0.2ppt to 4.0%, and the financial expenses ratio decreased by 0.3ppt to 0.4%; net profit margin decreased by 1.2ppt to 3.3%; and the company's cash flow improved markedly in 2023. The net operating cash inflow was 471 million yuan, a year-on-year correction from the net outflow of 170 million yuan in 2022; capital expenditure was 287 million yuan, a year-on-year decrease of 44.6%; the balance ratio remained 63.4%, and the net debt ratio decreased by 4.1ppt to -10.1%.

Development trends

Profits were under pressure in the short term, but new orders continued to increase, and EPC and prefabricated orders were greatly expanded to the industrial construction sector, and there is still potential for future growth. In 2023, the company signed new orders of 20.07 billion yuan, up 8% year on year; steel structure production and sales volume was 1.22 million tons, up 8.9% year on year; new orders for EPC and prefabricated construction projects were 3.31 billion yuan, up 16.2% year on year; new orders for Class B industrial construction projects were 10.08 billion yuan, up 16.7% year on year, and the proportion increased by 4ppt to 66%, including high-end industrial construction projects such as new energy vehicles, medical robots, and ecological smart industrial parks.

Taking advantage of the relocation of the manufacturing industry to the east, cooperation to “go overseas” began the company's second growth curve. In 2023, the company won a total of 2.69 billion yuan in overseas bids, an increase of 106% over the previous year; seizing the opportunity of advanced domestic manufacturing, the company cooperated with BYD Auto and other companies to build modern manufacturing plants for “overseas” enterprises. In 2023, the company signed new overseas industrial construction orders of 730 million yuan, an increase of 188% over the previous year, accounting for 83.3% of the total overseas orders. New overseas orders of 500 million yuan were signed in 1Q24, accounting for more than 60% of the full year of last year.

Keep watching the BIPV business growth trend. The company continues to lay out the “steel structure building+distributed photovoltaic roof” integrated business, benefiting from the company's broad industrial construction customer base and falling prices of superimposed photovoltaic modules. In 2023, the company undertook BIPV projects such as Minshi Group's Xianning base and Changhong Biodegradable Masterbatch Industrial Park, and the BIPV business contract amount reached 150 million yuan. It is recommended to pay attention to the progress of the implementation of the signed business.

Profit forecasting and valuation

Considering that demand for steel is under pressure and future market competition is becoming more intense, we lowered our net profit in 2024 by 42% to 599 million yuan, and introduced net profit of 652 million yuan in 2025. The current price corresponds to the 2024-25 P/E of 9.3x/8.6x; considering the decline in profit expectations but the potential for growth still exists, we lowered our target price by 25% to 3.58 yuan, corresponding to a 24-25 P/E of 12x/11x, implying 28.8% upward space.

risks

The acceptance of steel structure and BIPV projects fell short of expectations; overseas order delivery fell short of expectations.