occurrences

On October 25, 2024, the company released its results report for the third quarter of 2024: the company's revenue for the first three quarters was 4.71 billion yuan, +132.11% YoY; net profit to mother was 63.3529 million yuan, +114.59% YoY.

reviews

Revenue and net profit to mother continued to grow rapidly. Revenue continued to achieve rapid growth of over 100%, mainly due to the increase in construction revenue. Net profit to mother also maintained a year-on-year growth rate of more than 100%, mainly due to increased revenue from construction business, increased revenue from comprehensive maintenance business, and reduction in bad debts.

The amount of new contracts signed for engineering consulting continued to grow, and construction declined year-on-year due to the impact of real estate.

In the first three quarters of 2024, the total number of new contracts signed by the company was 4.766 billion yuan, compared to -59.83%. Among them: ① Engineering consulting services such as survey and design, engineering management, test and inspection were the company's traditional dominant business, and maintained a growth trend under the circumstances of slowing industry development and growth, completing new contracts of 0.768 billion yuan, an increase of 25.37% over the previous year; ② Construction and comprehensive maintenance engineering businesses were affected by the real estate industry, which completed new contracts of 3.998 billion yuan, a year-on-year decrease of 64.47%.

Cash flow continues to improve, and localised debt is expected to fix statements. In the third quarter of 2024, the company's cash flow improved compared to the half-year period. The net cash flow from the company's operating activities from January to September 2024 was $0.121 billion. It is expected that the strengthening of localized debt will help speed up the recovery of corporate contract receivables, continuously improve asset quality, and improve ROE and cash flow. Furthermore, after resolving debt risks, local governments may release more capital for infrastructure construction, and companies are expected to benefit from this.

The controlling shareholder actively acquired land, laying the foundation for business development. Against the backdrop of industry sales pressure, the controlling shareholder, C&D Real Estate, is still actively acquiring land. According to the CIA, C&D Real Estate acquired a total of 14 land lots from January to September 2024, with a total equity acquisition amount of 27.9 billion yuan, ranking third in the industry. C&D Real Estate continues to acquire new projects, providing a good foundation for the company's subsequent business development.

Investment advice

We keep our profit forecast unchanged. We expect net profit to be 81.71 million yuan, 99 million yuan, and 118.64 million yuan for 2024-2026, respectively, with year-on-year growth rates of +24%, +21%, and +20%, respectively. We maintain a “buy” rating considering the high growth rate and certainty of the company's future performance. The current price of the company's stock corresponds to the 2024-2026 PE valuation, 29.5x, 24.4x, and 20.3x, respectively.

Risk warning

Poor business development for controlling shareholders; risk of impairment of accounts receivable; risk of impairment of goodwill