The 2022 results are generally in line with our expectations
The company announced its 2022 results: 2022 revenue of 10.599 billion yuan, up 3.3% year on year, net profit of 972 million yuan, up 5.6% year on year. The company's performance is basically in line with our expectations.
Gross margin in 2022 was -0.9 ppt to 17.4% year on year; the sales/management expenses ratio was 0.7%/8.3%, respectively, the same as the previous year, and the financial expenses ratio was +0.3 ppt to 3.0% year over year; net interest rate was +0.2ppt to 9.2% year over year. The net cash inflow from operating activities in 2022 was 1,149 million yuan, an increase of 766 million yuan over the previous year, mainly due to the company's increased operating receipts and settlement of arrears; the net cash outflow from investment activities was 323 million yuan, a decrease of 380 million yuan over the previous year. The cash flow situation improved markedly in 2022. The company paid a dividend of $0.1,888 per share, corresponding to a 2022 dividend yield of 9.2%.
Development trends
Design revenue is growing, and attention is being paid to growth opportunities under the construction of urban agglomerations. In 2022, the company's design business revenue was 4.43 billion yuan, an increase of 0.6% over the previous year; among them, urban rail revenue was the same as the previous year; industrial and private construction design revenue increased 2.3% year on year; gross profit margin was 28.9%, a slight decrease of 0.7 ppt from the previous year; winning contracts increased 2.4% year on year, and the growth rate decreased 2.3ppt. During the reporting period, the company undertook 5 urban construction plans and won bids for 9 overall design projects, ranking first in the industry in the number of winning bids. Looking ahead, in terms of urban rail design, the central government is currently promoting the construction of urban rails and urban (suburban) railways in key urban agglomerations. We are optimistic about the steady growth of the company's urban rail design business; in terms of industrial private construction, according to the company announcement, the company acquired Beijing residential housing estates in 2022. We are optimistic that the design experience of Beijing residential homes will help improve the company's private construction design capabilities and performance growth.
The gross profit of the project is stable, and revenue is growing steadily. In 2022, the company's engineering revenue was 6.17 billion yuan, an increase of 5.4% over the previous year, and the gross profit margin was 9.1%, a slight decrease of 0.7 ppt from the previous year; while the winning contract was 3.476 billion yuan, a decrease of 84.8% year-on-year, mainly due to the high contract amount due to the bid for major PPP projects in the middle of the previous year. During the reporting period, the company's engineering business spread all over the country, and the increase in the number of projects started helped increase revenue. We believe that the company's project revenue is expected to grow rapidly, supported by large PPP contracts in the early stages.
Focus on A-share IPOs and plan to invest in smart urban rail projects. According to the company's announcement, the company's A-share IPO is currently in the application stage. It is proposed to be issued with a face value of 1.00 yuan per share, raising an amount of 2,267 billion yuan, and the planned project investment is 2,298 billion yuan. It plans to invest in the construction of intelligent urban rail design, digital platforms, etc. We believe that A-share IPO financing will help reduce leverage, expand capital strength, and help expand the scale of the project.
Profit forecasting and valuation
Due to the steady progress of the company's projects, we raised our profit forecast for 2023 by 8% to 1.07 billion yuan; introduced net profit of 2024 by 1.18 billion yuan. The company is currently trading at 2.5x/2.2x 23/24e P/E; considering that physical infrastructure workload in 2023 is expected to accelerate implementation, thereby boosting market expectations and valuations, we raised the company's target price 36% to HK$3.00, corresponding to 3.2x/2.9x 23e/24e P/E and 27% upward space, maintaining outperforming the industry rating.
risks
Competition in the private construction market has intensified, and project repayments have fallen short of expectations.