The performance of withholding has increased dramatically, and the quality of operations is expected to improve

In '23, the company achieved operating income of 12.996 billion yuan, a net profit of 326 million yuan, +12.26% year over year, and net profit without return to mother of 307 million yuan, +67.45% year over year, a significant improvement in non-performance, mainly due to a significant decrease of 88.16 million yuan in non-recurring profit and loss compared to '22 (receiving more government subsidies in the same period in '22, and disposal subsidiaries receiving more profit and loss on disposal of non-current assets). Looking at a single quarter, 23Q4 achieved revenue/net profit of 31.73 billion yuan and 54 million yuan, respectively -4.96% and +162.9% year-on-year. We believe that the company closely focuses on the dual-engine development strategy of the “EPC General Contracting +1 Project” to create a differentiated and characteristic brand project. At the same time, the company is actively promoting business model and business model innovation and transformation, taking more measures to vigorously develop the PV new energy business, and continue to expand the integrated photovoltaic construction market with the “prefabricated+EPC+BIPV” construction model, which is expected to contribute additional performance growth in the future.

The chemical fiber business ushered in marginal improvements. Photovoltaic power generation is expected to increase performance by business. The company's general engineering contracting, steel structure subcontracting, and chemical fiber business achieved revenue of 23.46 billion yuan, 70.98 billion yuan, and 3.199 billion yuan respectively in 2013, -24.39%, +16.93%, and +20.0% year-on-year respectively. The gross margin of the steel structure subcontracting and general contracting business was 12.28%, 13.66%, and 2.33%, respectively. The steel structure production output was 656,000 tons, +9.12% compared with the same period last year. There was some pressure, and revenue from the general contracting business declined. Demand in the chemical fiber market gradually recovered in '23, driving the company's chemical fiber business revenue and gross margin to increase markedly, but compared to the company's steel structure and engineering business, gross margin was still at a low level. Furthermore, in '23, the company achieved photovoltaic power generation revenue of 96 million yuan, +2140.59% year over year, gross margin of 24.43%, -2.5 pct year on year. Although it has declined, it is still significantly higher than other businesses. The company continues to expand the integrated photovoltaic building market with the “prefabricated+EPC+BIPV” construction model. We expect that the expansion of the photovoltaic power generation business will lead to an improvement in the company's overall profitability.

Profitability is declining, and there is still room for improvement in cash flow

The company's overall gross margin in '23 was 11.3%, -0.67pct year-on-year. The cost ratio for the period was 7.05%, -0.23pct year on year. Among them, the sales/management/R&D/finance expense ratios were 0.23%, 2.41%, 3.67%, and 0.74%, respectively, and -0.05, -0.23, -0.13, and +0.19pct, respectively. The significant increase in financial expenses was mainly due to the company's supplementary working capital and increased borrowing. The total loss of the company's assets and credit impairment in '23 was 155 million yuan, a year-on-year decrease of 103 million yuan. The net interest rate was +0.09pct to 2.53% year-on-year under the combined impact.

The net CFO of the company in '23 was -1,594 million yuan, with a year-on-year increase of 424 million yuan. The revenue ratio was +5.72 pcts to 94.22% year over year, and the pay-as-you-go ratio was +6.48 pcts year on year to 104.38%.

Steady and far-reaching, maintaining a “buy” rating

We believe that the company's main steel structure business is expected to fully benefit from the increase in the penetration rate of prefabricated buildings in the 14th Five-Year Plan, and photovoltaic power generation is expected to create a second growth curve. Considering that the company's profitability was under pressure in '23, we expect net profit to be $360, 4.0 million, and 450 million yuan for 24-26 ($380 and 420 million before 24-25), maintaining a “buy” rating.

Risk warning: Digital transformation falls short of expectations, order carry-over speed falls short of expectations, market development falls short of expectations, project gross margin falls short of expectations, and PV business development falls short of expectations.