Incident: The company released its 2023 annual report. In the first half of the year, the company completed revenue of 566 million yuan, an increase of 38.00% over the previous year, and achieved net profit of 106 million yuan, a year-on-year decrease of 5.84%. The performance was better than we expected. Among them, in the second quarter, the company completed operating income of 364 million yuan, an increase of 118.22% over the previous year, and completed net profit of 77.5626 million yuan, an increase of 939.14% over the previous year.
Profit indicators have been fully optimized, and the Belt and Road logic has been further verified. According to the semi-annual report, in the first half of the year, the company's foundation treatment and pile foundation engineering business achieved revenue of 456 million yuan and 108 million yuan respectively, up 22.05% and 275.94%, respectively, accounting for 80.58% and 19.08% of total revenue. By region, foreign and domestic revenue in the first half of the year were 356 million and 209 million, respectively, with year-on-year increases of 44.95% and 27.18%, respectively, accounting for 62.80% and 36.93% of total revenue, respectively. The share of foreign business increased by 3.01 percentage points year-on-year. Further verification. In terms of profitability, the company achieved a gross profit margin of 35.30% in the first half of the year, down 11.15 percentage points from the previous year. This was mainly due to the high confirmed gross margin for a single large order in the first quarter of last year. Among them, the gross profit margin for a single second quarter was 36.82%, up 11.54 percentage points from the previous year. Furthermore, the company's expense rate optimization logic continues to be implemented. The cost rate for the first half of the year was 14.30%, down 1.29 percentage points from the previous year. Among them, the sales, management, R&D, and financial expenses rates were 0.78%, 11.80%, 1.93%, and -0.20%, respectively. The year-on-year decrease was 0.13, 3.00, a decrease of 0.29, and an increase of 2.13 percentage points. The increase in the financial expense ratio was mainly due to exchange rate changes.
The balance ratio has increased and net cash flow has decreased. According to the semi-annual report, the company's balance ratio at the end of the second quarter was 18.86%, up 4.11 percentage points from the end of the first quarter, up 3.07 percentage points from the previous year; net operating cash flow in the first half of the year was 55.45 million yuan, down 86.09 million yuan, a year-on-year decline of 60.82%. The company's revenue ratio in the first half of the year was 96.34%, down 20.01 percentage points from the previous year, and the payout ratio was 95.59%, down 14.13 percentage points from the previous year. The decline was also due to major project disruptions in the first quarter of last year.
The number of new orders signed continues to rise rapidly, and the trend of both rising revenue and profit has not changed. We are looking forward to the volume of orders placed in the Middle East. According to the semi-annual report, the company signed a total of 18 new projects in the first half of the year, including 5 domestic and 13 overseas. The total number of new orders signed was about 666 million yuan, an increase of 28.90% over the previous year. Of these, new orders signed in the overseas market were about 487 million yuan, and the number of new orders signed in the domestic market was about 179 million yuan.
The company's “three-step” plan resonates with the “Belt and Road”, and business profitability in Southeast Asia, the Middle East, Latin America, and Eastern Europe is rising step by step. It is expected that with the deepening of the Middle East layout, trillion-level benchmark projects such as The Line are expected to further open up demand space in the Middle East, the company's new orders are expected to accelerate further, and the trend of double revenue and profit growth is expected to continue.
Profit prediction and valuation: The company fully binds the interests of management and core employees through employee shareholding and restricted stock incentives. The long-term penetration rate growth path is clear, cash flow is excellent within the industry, and long-term gross margin is expected to break out of the upward trend of scarcity in traditional construction stocks. Maintain the 23-25 profit forecast of 284, 3.69 million yuan, and 468 million yuan, corresponding to the current PE of 24, 19, and 15X, respectively, and maintain the “buy” rating.
Risk warning: risk of patent technology infringement; risk of implementation of the Belt and Road Initiative falling short of expectations; geopolitical risk