Net profit due to mother is forecast to drop 11-17% year over year in 2023
The company announced its 2023 performance forecast. It is estimated that revenue in 2023 will increase 19-23% year on year to 31-3.2 billion yuan, and net profit to mother will drop 11-17% year on year to 1.55 to 165 million yuan, lower than market expectations. It is mainly due to factors such as a decline in gross margin exceeding expectations, an increase in credit impairment losses, and an increase in minority shareholders' equity brought about by the city partner plan.
Key points of interest
Multiple factors have led to a certain decline in comprehensive gross margin. We expect the company's overall gross margin to decline by 2-3 percentage points, which is mainly affected by the following multiple factors: 1) some customer budgets have been reduced to a certain extent due to budget cuts for some customers; 2) aviation business operations are still under pressure, and it is expected that the aviation industry will still face losses in 2023; 3) the cost of own employees will continue to face a rigid rise in the context of pressure on profitability.
Market expansion remains resilient, and profit margins of newly signed projects are under marginal pressure. The company will maintain good market expansion resilience in 2023. The company announced that the total number of new contracts signed for the whole year is about 2 billion yuan, corresponding to annual saturated contract revenue of about 1 billion yuan, which is basically the same as in 2022; during the year, the company continued to promote a nationalization strategy, and companies in key cities such as Beijing, Shenzhen, and Nanjing maintained a good scale expansion. Affected by the tight budgets of some customer groups and policies such as the implementation of lowest price tenders in some regions, new market expansion projects may also face certain profit margin pressure.
Buybacks and management holdings increase are beneficial to the protection of shareholders' interests. From November to December 2023, the company successively issued repurchase announcements and plans for executives to increase the company's share holdings. It plans to use their own capital to repurchase shares of 15 to 20 million yuan as employee incentives. Some executives plan to increase their holdings by a total of not less than 10.7 million yuan; up to now, the company has repurchased 400,000 shares of the company (corresponding amount of 5.29 million yuan), and executives have increased their total holdings of the company by 710,000 shares (corresponding amount of 8.7 million yuan). We believe that in the context of phased pressure on operations, the company's buyback and management holdings may be beneficial to safeguarding shareholders' interests, and also reflect management's confidence in the company's long-term development.
Profit forecasting and valuation
We lowered the company's 2023 and 2024 profit forecasts by 5% and 8% to 160 million yuan (down 14% year on year) and 180 million yuan (up 16% year over year), mainly considering that profit margins may continue to be under certain pressure. At the same time, we introduced a profit forecast for 2025 to forecast net profit of 210 million yuan, an increase of 14% year over year. Maintaining a neutral rating, the target price was lowered by 21% to $10.5 (corresponding to 13 times the 2024 price-earnings ratio, and 4% upward space), which mainly reflects adjustments in profit forecasts and increased uncertainty about future growth. The company is currently trading at 12.4 times its 2024 price-earnings ratio.
risks
The gross margin of market expansion projects continues to be under pressure, and the improvement in profitability falls short of market expectations.