Events:

The company released its mid-2023 report. In 2023, H1 Company achieved a total operating income of 7.79 billion yuan, an increase of 64.83% over the same period last year, a total profit of 310 million yuan, an increase of 26.83% over the same period last year, and a net profit of 300 million yuan, an increase of 29.55% over the same period last year.

Comments:

Q2 performance is higher than the same period last year. The company's 2023H1 achieved rapid year-on-year growth in revenue and net profit, mainly due to a substantial recovery in the second quarter. The company's 2023Q2 achieved revenue of 3.85 billion yuan, an increase of 346.84% over the same period last year, and a net profit of 140 million yuan, an increase of 255.89% over the same period last year.

The main business of project construction has a strong growth momentum. The main business of the company's engineering construction contributed the main performance. 2023H1 realized revenue of 7.52 billion yuan, accounting for 96.54%, and gross profit of 480 million yuan, accounting for 87.97%. 2023H1, the company signed 110 new construction contracts with a total amount of 15.585 billion yuan, an increase of 102.12% over the same period last year. Among them, infrastructure projects / housing construction projects / architectural decoration were 6.734 billion yuan / 8.374 billion yuan / 476 million yuan, accounting for 43%, 54%, 3%. With the gradual transformation of newly signed orders, the engineering construction business is expected to continue to promote the company's high performance.

It is proposed to acquire Nanhui Construction Engineering. In 2022, the company completed the equity acquisition of Pudong Design Institute, increased the business of design, survey and consulting, conformed to the development trend of the construction industry, and promoted the coordination of design and construction business. On July 16, 2023, the company issued an announcement that in order to implement the plan for the reform of state-owned enterprises in the Pudong New area and further give play to the advantages of a sound industrial chain, it is proposed to acquire 100% equity of Nanhui Construction Engineering with 298 million yuan. Nanhui Construction Engineering has a number of qualifications such as the first-class general contract for construction projects, which is conducive to enhancing the company's competitiveness in major projects. The revenue of 2023H1 Nanhui construction project is 478 million yuan and the net profit is 3.6 million yuan. On August 9, 2023, the company announced that the acquisition had been approved by the competent unit of state-owned assets management, and the contract had been signed by both parties.

Or benefit from the acceleration of the urban renewal process in Shanghai. According to the Shanghai Urban Renewal Action Plan (2023Must2025), by 2025, Shanghai plans to focus on more than 10 comprehensive regional renewal projects and implement a higher level renovation of all kinds of old houses of 30 million square meters. The company is expected to benefit as an important participant in the construction of Shanghai projects.

Maintain a "buy" rating. It is estimated that from 2023 to 2025, the EPS is 0.70, 0.81 and 0.94 yuan, and the corresponding PE is 9.81, 8.40 and 7.24 times.

Risk hint: infrastructure investment is not as expected, company performance is not as expected, payback risk