1H24 results are in line with our expectations

The company announced 1H24 results: revenue +0.1% YoY to HK$4.722 billion, net profit +26% YoY to HK$0.55 billion (driving net interest rate +2.4ppt to 11.7% YoY), which is basically in line with our and market expectations.

The Hong Kong and Macau curtain wall projects continued to grow at a high rate, supporting the company's core profits. 1H24's curtain wall business remained flat year over year. Among them, the Hong Kong and Macau curtain wall business revenue was +24% to HK$3.057 billion, while the company actively controlled other non-core businesses (excluding Hong Kong and Macau, other revenue was -26% to HK$1.665 billion, with revenue in North America -0.162 billion to HK$0.035 billion year over year).

Due to the increase in the share of the curtain wall business in Hong Kong and Macau (52% of 1H23 to 65% of 1H24), 1H24's comprehensive gross margin was +1.8ppt to 16.1% year over year (gross margin of curtain wall business +2.4ppt to 15.8% year over year).

The contract amount for the Hong Kong and Macau curtain wall project remains high. The amount of new contracts signed by 1H24 was -9% to HK$6.044 billion (mainly the 1H23 contract included a large number of high-value hospital projects, and the 1H24 contract signed +24% month-on-month).

The asset structure continued to improve: the balance ratio fell -2.7ppt to 76% from the end of '23, and the net debt ratio was -3.7ppt to 27.1% year-on-year.

It is highly attractive under high growth, high dividends, and undervaluation. The company declared an interim dividend of HK$0.07, corresponding to an interim dividend rate of 3.4%. We estimate the dividend rate for 24 to reach ~ 6%. Looking forward to the future, driven by Hong Kong and Macau business, the company will maintain a profit growth rate of ~ 30% in 24-25, while the current 24-year valuation is only 6.1x P/E. The valuation is extremely cost-effective under high growth rates and high dividends.

Development trends

Deeply cultivate Hong Kong and Macao, strengthen the mainland, and focus on new markets; BIPV is gradually being implemented. The company maintained its dominant position in the Hong Kong and Macau markets and won the bid for two major commercial projects, the superstructure of the Hong Kong West Kowloon High Speed Rail and the new Central Waterfront. In the mainland sector, it continues to obtain high-end projects (1H24 won the bid for Oppo Talent Apartment and Shanghai Sina headquarters project).

Meanwhile, the company recently obtained the Singapore Central Mall project in overseas markets. On the BIPV side, as the company continues to cultivate technology and continue to cooperate with experts in various fields, the project implementation is gradually showing success. We are optimistic that it will become a new source of revenue growth for the company during the “15th Five-Year Plan” period.

Profit forecasting and valuation

We keep our net profit forecast unchanged for 24/25, and the current stock price corresponds to 2024/25e 6.1/4.7xp/E. We maintained our outperforming industry rating, but considering the reduced risk appetite in the market, we lowered our target price by 23% to HK$2.8, corresponding to 8.2x/6.3x 24e/25e P/E, implying 35% upside.

risks

Demand from Hong Kong and Macau fell short of expectations, and orders fell short of expectations.