Incident: The company announced that 2024Q1 revenue of 4.544 billion yuan decreased by 10.78%; realized net profit of 203 million yuan, a decrease of 25.58%; net profit without deduction of 165 million yuan and a decrease of 23.89%.

Q1 The decline in revenue narrowed month-on-month, and operations were still under pressure. 2024Q1's gross sales margin was 13.25%, down 1.06 pct; the cost ratio for the period was 7.99%, up 0.7 pct. Among them, the sales/management and R&D/finance ratio were 1.74%/6.16%/0.09%, respectively, with a year-on-year change of 0.19pct/0.75pct/-0.25pct. The asset and credit impairment loss rate -0.49% decreased by 0.93pct; the net interest rate to mother decreased by 0.89pct at 4.47%. The company's net cash outflow from operating activities during the period was $1,585 million, an increase of $263 million; as of the end of March, the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, advance accounts receivable + contract liabilities were $130.58/95.37/151.23/ $1,433 billion, respectively, a year-on-year change of -8.33%/-1.63%/-7.58%/-7.58%.

Real estate policies are frequently compounded to speed up the issuance of special bonds, waiting for demand in the industrial chain to recover. 2024Q1 signed a total of 6.05 billion yuan, an increase of 0.6%, including 52.9/41/350 million yuan for public/residential/design projects, a year-on-year change of 11.0%/-45.6%/-29.3%. By the end of March 2024, the total amount of unfinished orders signed by the company was 22.108 billion yuan, a decrease of 8.4%. Since this year, due to city policies, various regions have successively introduced relevant real estate adjustment and optimization policies, including abolishing or easing purchase restrictions, optimizing provident fund loan policies, and phasing out lower interest rate limits on loans. At the same time, the “three major projects” are also speeding up the process. On the basis of the gradual establishment of work goals in various regions, it is expected that the implementation of the three major projects will be accelerated in the future.

As the issuance of local government special bonds is expected to accelerate in May, and projects supported by ultra-long-term treasury bonds may gradually be implemented, and new infrastructure construction starts or reaches an inflection point, thereby boosting corresponding decoration design and construction needs, the company is expected to take the lead in benefiting as a leading enterprise in the first tier of the industry.

Investment proposal: We expect the company to achieve operating income of 197.85/208.12/22.794 billion yuan and net profit to mother of 10.32/11.63 billion yuan in 2024-2026. The closing price on April 30 was 8.82/7.83/6.84 times PE, respectively, maintaining the “gain” rating.

Risk warning: Macroeconomic downside risks, new orders falling short of expectations, and real estate industry recovery falling short of expectations.