Shareholders' net profit increased 26.1% year over year

The company's 1H24 shareholders' net profit increased 26.1% year over year to 0.55 billion yuan (HK$, same below), in line with our expectations. Revenue increased 0.1% year over year to 4.72 billion yuan. Among them, Hong Kong and Macau curtain wall revenue increased 24.0% year over year to 3.06 billion yuan, accounting for 12.4 percentage points to 64.7% year on year. The remaining 35.3% of revenue came mainly from mainland China. As the gross margin of the Hong Kong and Macau business has always been high, the company's total gross margin increased 1.8 percentage points to 16.1% year over year.

The amount of new contracts signed by the company fell 8.7% year on year to 6.04 billion yuan in the first half of the year. Among them, contracts in Hong Kong and Macau fell 25.7% year over year to 3.16 billion yuan because the 2.49 billion government hospital project contract was obtained last year, but such projects were not continuously launched. Despite this, the company has received a number of landmark façade projects from Hong Kong developers, including Sun Hung Kai Properties (16 HK)'s West Kowloon Art Plaza Tower project and Henderson Land (12 HK)'s Central New Waterfront 3A commercial project. As of June 30, 2024, the company's outstanding contracts increased by 12.8% year-on-year to 17.28 billion yuan, which can guarantee revenue for the next few years.

BIPV (Photovoltaic Building Integration) business continues to develop

In March of this year, the State Council issued the “Work Plan on Accelerating Energy Conservation and Carbon Reduction in the Construction Sector”, which requires all regions to promote the integrated construction of new photovoltaic buildings such as industrial plants, public buildings, and residential buildings on a pilot basis. In fact, the company has already started the BIPV (Photovoltaic Building Integration) business, and successfully won bids for various projects in Hong Kong and Macau in 1H24, such as temporary office buildings on the Tuen Mun New Territories West Landfill Expansion Project site and the BIPV project for sound insulation screens on Castle Peak Road.

Entering the Singapore market is expected to replicate the success of Hong Kong and Macau businesses

Recently, the company won the bid for the first time for the Singapore project and obtained a contract for the façade subcontract for the Central Mall project at Havelock Road (Havelock Road). Compared to the Middle East and other ASEAN regions, Singapore is more similar to Hong Kong and Macau in terms of ethnic culture, legal system, and urban landscape. The company is expected to replicate the success of Hong Kong and Macau businesses in the Singapore market.

Reiterating the “buy” rating

Based on FY24's interim results, we raised the FY24-25 shareholders' net profit forecast by 2.1% and 0.1% respectively, and added the FY26 forecast. We raised our target price from HK$3.00 to HK$3.07, corresponding to 9.0 times the FY24 target price-earnings ratio and 47.4% growth potential. Reiterate the “buy” rating.

Risk Alerts: (1) Slowing down of project development; (2) urban planning changes; (3) technology substitution; (4) PV industry risks; (5) exchange losses.