Incident: The company achieved revenue of 4,086 billion yuan in 2024Q1, an increase of 19.50%, and net profit to mother of 182 million yuan, an increase of 11.10%. After deducting net profit of non-return to mother, it was 177 million yuan, an increase of 21.87%. The reviews are as follows:

Gross profit margin and net interest rate declined, asset and credit impairment reversals increased, and net operating cash outflow decreased.

In terms of gross margin, the company dropped 0.90 pcts to 15.84% in 2024Q1. In terms of the cost ratio for the period, the cost ratio decreased by 1.21 pcts to 11.77% during the 2024Q1 period. Among them, the sales expense ratio also increased by 0.06 pcts to 1.56%, the management cost ratio decreased by 0.58 pcts to 6.84%, the R&D expenses rate also decreased by 0.20 pcts to 2.48%, and the financial expenses ratio also decreased by 0.48 pcts to 0.89%. In addition, 2024Q1's asset impairment and credit impairment losses were reversed back to $104 million, up 37.25%; net loss from changes in fair value was $0.05 billion, while 23Q1 was net income of $0.06 million; asset disposal losses were $0.01 billion, and 23Q1 was revenue of $11 million; and income tax of $45 million, up 21.86% from the same period. Overall, the 2024Q1 net margin also fell 0.19 pct to 5.18%. In terms of operating cash flow, the net operating cash flow of 2024Q1 was 968 million yuan, down 7.81% from the 2023Q1 net outflow of 1,050 million yuan; of these, revenue increased 7.16 pcts to 131.95% over the same period, and cash payments decreased 2.17 pcts to 156.45% compared to the same period. Additionally, 2024Q1 companies' weighted average ROE decreased by 0.01 pct to 2.54%.

The winning bid amount for the interior decoration business resumed positive growth of 15% in 24Q1, and the dividend ratio increased sharply to 33.73% in '23.

In terms of orders, for 2024Q1, the company's building decoration sector won a total bid amount of 5.189 billion yuan, an increase of 5.95% over the previous year; of these, the standard price for curtain wall systems was about 3,031 billion yuan, an increase of 0.27% over the previous year, and the standard amount for interior systems was about 2,158 billion yuan, an increase of 15.09% over the previous year. The winning bid amount for the company's interior business has resumed positive growth since 23Q2. In addition, the company undertook a total of about 50 million yuan of photovoltaic construction projects (BIPV) in 2024Q1, a year-on-year decrease of 41.07%. We believe that the bid amount for BIPV projects fluctuated greatly, which is related to the relatively small base for the first quarter. On April 8, 2024, the company issued an announcement. The wholly-owned subsidiary won the bid for the Beijing Central Business District (CBD) core area Z6 plot (commercial office) curtain wall project, with a total bid amount of 230 million yuan, accounting for about 1.10% of the company's 2023 revenue. In terms of cash dividends, the company reviewed and approved the 2023 profit distribution plan and determined that a cash dividend of 0.2 yuan per A share will be paid on May 10, 2024 (0.02 yuan per share in 2022). The 2023 dividend ratio will increase by 29.10 pcts to 33.73% from 4.63% in 2022.

Profit forecasting and ratings. Under the overall pressure of the decoration industry, the company's leading position is prominent. The risk of impairment has basically been released, asset+credit impairment has begun to decline in '23, and orders in the domestic sector have resumed growth in the first quarter. At the same time, with the general trend of green construction, the company already has a first-mover advantage in the field of photovoltaic construction. We are optimistic about the company's future performance. We expect EPS to be 0.69 and 0.77 yuan respectively in 24-25. As an industry leader, the company will enjoy a leading effect, giving a price-earnings ratio of 14-16 times in 24 years, a reasonable value range of 9.64-11.02 yuan, and maintaining a “superior to the market” rating.

Risk warning. Refund risk, business development risk, policy risk.