Shareholder net profit rose 35.7% in the first half of 2023 compared with the same period last year.
The company's mid-term performance in 2023 is satisfactory. The net profit of shareholders in the first half of the year rose 35.7% to 440 million yuan (HK $, the same below), similar to the increase of at least 35.0% in Yingxi's forecast, mainly due to: (1) revenue from curtain wall construction increased by 25.8% to 3.65 billion yuan over the same period last year. Among them, the market income of Hong Kong, Macao and the mainland increased by 27.1% and 48.6% to 2.47 billion yuan and 1 billion yuan respectively, accounting for 67.6% and 27.3%, respectively. (2) the gross profit margin of curtain wall projects increased by 1.8 percentage points to 15.2% compared with the same period last year; (3) the proportion of administrative, sales and other expenses in total income decreased by 0.9 percentage points to 3.4%; and (4) the real tax rate dropped from 14.8% to 13.6%.
There are plenty of contracts on hand, and the market of Hong Kong and Macao is rising rapidly.
In the first half of the year, new curtain wall contracts rose 8.8 per cent year-on-year to 5.71 billion yuan, of which the Hong Kong and Macao market was flat to 4.26 billion yuan, while the mainland market rose 51.1 per cent to 1.45 billion yuan. Examples of new projects include site An of Kai Tak New Acute Hospital in Hong Kong, Prince of Wales Hospital in Hong Kong, plot 31, Jianghehui, Hangzhou, and Rakuten Plaza Commercial complex in Chengdu. As of June 30 this year, outstanding curtain wall contracts in hand rose 23.3% to 12.83 billion yuan compared with the same period last year, of which the Hong Kong, Macao and mainland markets rose 29.3% and 28.7% respectively to 8.96 billion and 3.51 billion yuan, accounting for 69.8% and 27.4%, respectively.
Focus on the Middle East, Saudi Arabia, Southeast Asia, Singapore and other friendly markets due to changes in the international situation, the company has maintained a shrinking North American market strategy and has not signed a new local contract since 2021. In the first half of the year, outstanding curtain wall contracts in North America fell 47.9 per cent to 360 million yuan from a year earlier, accounting for 2.8 per cent of the total curtain wall contracts. The company has shifted its attention to friendly markets such as Middle East, Saudi Arabia, Southeast Asia and Singapore.
Profit forecast is maintained, reiterating the "buy" rating
We roughly maintain the 2023-24 shareholder net profit forecast and update the 2025 forecast. Rolling to 9.0 times the 2024 target price-earnings ratio, we accordingly raised the target price from HK $2.88 to HK $3.32, corresponding to 28.8% room for increase. Reiterate the "buy" rating.
Risk tips: (1) slow development of real estate / government projects; (2) delays in urban planning; (3) technology substitution; (4) photovoltaic industry risks; (5) exchange losses.