Incidents:

The company released its 2024 quarterly report. In the first quarter of 2024, the company achieved total operating income of 230 million yuan, a year-on-year decrease of 6.8%; realized net profit of 40 million yuan, an increase of 555.4% over the previous year; realized net profit of 40 million yuan without return to mother, an increase of 729.8% over the previous year.

Comment:

New design signings were +27.3% year-on-year, and demand may gradually recover. 2024Q1, the company signed a new contract amount of about 310 million yuan, an increase of 20.9% over the previous year; among them, the design business signed 250 million yuan, an increase of 27.3%; the single quarter achieved positive growth for two consecutive quarters. The cumulative year-on-year decline stopped, and demand has gradually recovered; the soft decoration business signed 60 million yuan, an increase of 3.4% year on year. By the end of 2024Q1, the company had signed unfinished orders of about 3.43 billion yuan, of which only 40 billion yuan was the engineering business orders, down 6.7% from the previous year, and the scale continued to shrink.

The business structure and account quality were improving steadily, and performance achieved a high year-on-year increase. 2024Q1, the company's net profit increased 555.4% year on year, and the growth rate was higher than operating income. It is estimated that the main reason is that the scale of the low-profit margin engineering business has shrunk. The second is that in the current period, the company achieved a gross sales margin of 32.9%, an increase of 7.5% year on year; second, the current period recovered old funds and transferred back corresponding bad debts to prepare to be transferred back, which resulted in confirmed revenue of 0.3 billion yuan in asset impairment loss accounts, an increase of 40 million yuan over 2023Q1; it is determined that low-quality accounts on the engineering side may have been gradually cleared, and the liquidity pressure on the industrial chain has also been mitigated. In terms of cash flow, 2024Q1, the net cash flow generated by the company through operating activities was -0.1 billion yuan, an increase of 50 million yuan over the previous year.

Promote market value management actions such as dividend increases and share repurchases, and demonstrate the operating confidence of actual controllers. First, the company plans to pay a cash dividend of 50 million yuan on top of a loss of 50 million yuan in 2023. Second, in February 2024, the company announced plans to repurchase shares, with a repurchase capital of about 50 to 100 million yuan; according to the company's announcement, as of April 30, 2024, the company had repurchased 7.62 million shares through centralized bidding transactions through special securities accounts, accounting for 2.8% of the company's total share capital, with a total transaction amount of RMB 47 million.

Maintain a “buy” rating. The company is a leading enterprise in the field of interior design. With the optimization of the business structure, performance has recovered; soft decoration is also expected to achieve rapid growth with the support of design-side traffic, and has long-term investment value. It is predicted that the company's EPS for 2024 to 2026 will be 0.30, 0.52, and 0.63 yuan respectively, and the corresponding PE will be 24.0, 13.8, and 11.4 times, respectively, under the current stock price, maintaining a “buy” rating.

Risk warning: High-end public construction recovery falls short of expectations, software development falls short of expectations, project repayment risk