Revenue and net profit to mother in '23 were -7.5%/-19.6% YoY, maintaining the “increase in holdings” rating

The company achieved revenue/net profit attributable to mothers/net profit of 202/10/8 billion yuan in fiscal year 23, -7.5%/-19.6%/-20.0% year-on-year. Net profit attributable to mother was lower than our expectations ($1.2 billion), mainly due to declining gross margin and declining revenue and rising expense rates. 24Q1 achieved revenue/net profit attributable to mothers/net profit deducted from non-mother of 45.4/2.0/ 170 million yuan, -11%/-26%/-24% year-on-year. Taking into account the slow recovery of the real estate industry, we adjusted the 24-26 net profit forecast to be $9.7/10.0/1.05 billion ($1,31/1.42 billion 24-25 years ago). Comparable companies consistently expected an average of 16 x PE in 24. Considering that the company's revenue and profit scale as the industry leader is large, and the future demand recovery phase performance is flexible or less flexible than that of comparable companies, the company was given 13 xPE in 24, adjusted the target price to 4.73 yuan (previous value 5.40 yuan), and maintained a “gain” rating.

The design business grew rapidly in 23, and the main decoration business dragged down the comprehensive gross margin segment business. In 23, the company achieved revenue of 168.1/17.7/1.46 billion yuan, -9.8%/+7.3%/+11.5% year-on-year, with gross margins of 13.2%/5.8%/39.5%, respectively, -0.94/-3.11/+1.26pct. By region, in '23, the company achieved revenue of 61.1/14.08 billion yuan, a year-on-year revenue of -18.3%/-1.8%, gross profit margin of 19.3%/12.9%, and +1.0/-1.6pct year-on-year. The 23-year comprehensive gross profit margin was 14.81%, year-on-year -0.97pct, 23Q4/24Q1 gross profit margin 13.79%/13.25%, year-on-year -1.97/-1.06 pct.

The increase in the cost ratio during the period dragged down the net interest rate. The increase in operating cash flow was +0.47 pct to 8.26% year on year. Among them, sales/management/R&D/finance expenses were 1.70%/2.98%/3.31%/0.27%, respectively, +0.13/+0.41/-0.05/-0.02pct year on year, and financial expenses were -15.2% year over year, mainly due to a decrease in interest expenses of 8.21 million yuan combined with an increase of 1.24 million yuan in exchange gains and losses. Impairment expenses in '23 were 120 million yuan, accounting for revenue ratio of -0.77pct to 0.61% year on year, net interest rate of 5.07% to mother in '23, -0.76pct year on year, and 4.47% of net interest rate to mother in 24Q1, and -0.89pct year on year. The company's net operating cash flow for 23 years was 340 million yuan, an increase of 42 million yuan in year-on-year inflows, 104%/99% payment/payout ratio, -1.20/-1.92 pct year on year.

New orders signed in '23 were +6.8% YoY, and have maintained positive growth for 4 consecutive quarters. The company signed new orders of 23.67 billion yuan in '23, +6.8% YoY, and +4.9%/+1.8%/+35.5% year-on-year respectively. The number of new 23Q1-24Q1 orders in a single quarter was -16.1%/+36.6%/+14.8%/+4.3%/+0.6%, respectively. Of these, 24Q1 was 52.9/3.5/410 million, +11.0%/-53.6%/-17.2%. New orders continued to grow for 4 consecutive quarters, indicating the gradual improvement of the company's operations. At the end of 24Q1, the company had signed a total of 22.1 billion yuan of unfinished orders, which is 1.1 times the revenue for 23 years, providing a safety cushion for revenue.

Risk warning: Order growth falls short of expectations; project payback falls short of expectations.