Incident: Guanglianda released its report for the first quarter of 2024. During the reporting period, the company achieved main revenue of 1,286 billion yuan, a year-on-year decrease of 1.08%, and realized net profit attributable to the parent company of 6.078 million yuan, a year-on-year decrease of 94.92%. Net profit excluding non-return to mother was a loss of 1.387 million yuan.

The cost and cost business is still the company's basic business. On the revenue side, by business, digital cost, one of the two core businesses, achieved revenue of 1.04 billion yuan, an increase of 4.46% over the previous year; in addition, the digital construction business was still in the adjustment period in the first quarter, achieving revenue of 107 million yuan, a year-on-year decrease of 26.25%. The cost business 24Q1 accounted for about 86% of total main revenue (about 81% in the same period last year), and its relatively commercialized and standardized business model increased the overall gross margin level of a single quarter by nearly 1 pct year over year.

The effect of fee control has already been shown. The core factor in judging whether the company's profit side can be reversed in 24 years is cost side control, and judging from the 24Q1 company's performance, the overall cost control effect has gradually been achieved. Sales expenses and R&D expenses decreased by 6.27% and 10.2%, respectively, compared to the same period last year. Also, although the apparent management costs increased by 47.62% over the same period last year, the main reason is one-time compensation brought about by personnel optimization. With the release of this portion of expenses, it is expected that management costs will also drop significantly in the future.

In the future, the focus will be on whether the new cloud contract for the cost business can be stabilized. The company signed a new cloud contract of 375 million yuan in the first quarter, achieving a year-on-year increase of 1.98%. Compared with the 6.47% year-on-year decline in new cloud contracts signed in '23, there is a certain marginal improvement. We believe that the company's cost business has completed the transformation of the subscription system and can maintain a certain level of performance resilience, but it is still unable to overcome the negative demand-side impact caused by the continued decline in the downstream construction industry, especially in the civil construction sector. It may still take some time to observe whether the current cost business has achieved a steady recovery in the new cloud contracts.

Investment advice: We forecast the company's revenue for 2024-2026 to be 69.24, 76.88, and 8.720 billion yuan, respectively, and net profit to mother of 472, 6.99, and 978 million yuan respectively. We are still optimistic about the company's full life cycle layout in the digital construction field and maintain the company's “buy” rating.

Risk warning: The construction industry continues to decline; the digital transformation of the industry falls short of expectations; competition in the digital construction business intensifies; and new businesses such as design fall short of expectations.