Incidents:
The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 6.65 billion yuan, an increase of 16.3% over the previous year; achieved net profit of 310 million yuan, an increase of 50.2% over the previous year, and realized net profit without deduction of 280 million yuan, an increase of 66.4% over the previous year. In the first quarter of 2024, the company achieved operating income of 1.24 billion yuan, a year-on-year increase of 2.3%; realized net profit of 60 million yuan, an increase of 6.6% over the previous year, and realized net profit without deduction of 50 million yuan, an increase of 10.0% over the previous year.
Comment:
The number of new contracts signed in emerging fields such as new energy and pharmaceuticals is increasing. In 2023, the company signed a new contract amount of 8.02 billion yuan, a year-on-year decrease of 19.2%, mainly due to receiving many large orders in 2022, which led to a high base. By industry, light industries such as pulp and paper, food fermentation, and household chemicals signed new contracts worth 4.34 billion yuan, private construction, environmental protection and other advantageous industries signed 1.94 billion yuan, and new cultivation industries such as pharmaceuticals and new energy sources signed 1.31 billion yuan, respectively, -29.6%, -28.2%, and +78.9% year-on-year. Among them, the share of new contracts signed in the pharmaceutical and new energy sector was 16.4%, up 9.0pct from 2022; in the first quarter of 2024, this share increased again to 23.7%, with remarkable business development results.
The performance exceeded expectations, mainly due to an increase in gross margin and a reduction in the scale of impairment. By business, in 2023, the company's general engineering contracting, engineering design, engineering supervision, and engineering consulting businesses achieved revenue of 46.7, 12.9, 4.1, and 160 million yuan respectively, +23.6%, -1.2%, -9.3%, and -4.2% over the same period last year. The development of the general engineering contracting business market achieved initial results, contributing to the main increase in performance. On a quarterly basis, Q1-Q4 of 2023 achieved revenue of 12.1, 15.0, 15.0 billion yuan, and 2.45 billion yuan, respectively, of +9.8%, +8.8%, +13.4%, and +27.4% over the same period, increasing quarterly. In terms of profit margin, in 2023, the company achieved a gross sales margin of 14.6%, an increase of 1.3 pct; a year-on-year cost ratio of 8.7%, an increase of 1.4 pct; accrued impairment losses of 0.2 billion yuan, a year-on-year decrease of 80 million yuan; and achieved a net sales margin of 4.7%, an increase of 1.1 pct over the previous year. Performance exceeded expectations, mainly due to high revenue growth in general engineering contracting business, significant increase in gross margin, and return of impairment losses to pre-epidemic levels. In terms of cash flow, the net cash flow generated by the company through operating activities was -240 million yuan, an increase of 1.14 billion yuan over the previous year. The main reason was that the company paid related accounts payable according to the plan during the reporting period.
Maintain a “buy” rating. The company has been deeply involved in light industry engineering design for many years, focusing on pioneering emerging fields such as pharmaceuticals and new energy, and has achieved initial results, and has broad room for growth. The company's 2024-2026 EPS is estimated to be 0.79, 0.87, and 0.94 yuan, respectively; the corresponding PE is 14.8, 13.5, and 12.4 times, respectively.
Risk warning: light industry investment falls short of expectations, new business development falls short of expectations, project repayment risk