An international integrated geotechnical engineering service provider, covered for the first time, and was given a “buy” rating for Shanghai Harbour. It has extensive engineering experience in China, Southeast Asia, the Middle East, South Asia, Latin America, etc., and has grown into an international integrated geotechnical engineering service provider with the three core technology systems of soft foundation treatment, including the “high vacuum compression method”. We believe that the company has three core points: 1) the company's ongoing orders have maintained rapid growth to support the release of performance. 23H1 signed 670 million new orders, +28.90% over the same period, with overseas orders accounting for 73.15%; 2) the foundation business has good repayment and a high gross margin level; 3) the infrastructure investment boom in the Middle East and Southeast Asia region is high, and overseas business is expected to expand rapidly in the short term. Considering that the company's equity incentives are expected to stimulate growth momentum, we expect the company's net profit to be 2.16/311/441 million yuan in 23-25 years. According to the PEG valuation method, the company will be given 26 times PE in 24 years, and the corresponding target price is 33.01 yuan. For the first time, coverage is given, and a “buy” rating is given.

Saudi Arabia's “Vision 2030” stimulates demand for infrastructure investment. The prospects for Sino-Saudi infrastructure cooperation are broad. Saudi Arabia's “Vision 2030” key projects will cost more than 1 trillion US dollars. As of April 23, the total amount of projects under construction in the four major fields of electricity, transportation, housing, and water services is 13.3 billion US dollars, and the amount of projects to be implemented has reached 1.29 trillion US dollars, and the infrastructure demand is high. Cooperation between China and Saudi Arabia has a deep foundation. China Construction and China Power Construction have already received pilot projects from The Line, laying the foundation for later order acquisition.

The Middle Eastern subsidiaries Harbour Saudi Arabia and Harbour Dubai 23H1 achieved revenue of 3770/4.52 million yuan and net profit of 1103/11.67 million yuan respectively. The total revenue and net profit ratio of the 23H1 subsidiaries was 15%/21%, and the net interest rates of Harbour Saudi Arabia and Harbour Dubai 23H1 were 29% and 26% respectively. The overall profit level of the Middle East project was good.

Indonesia's capital relocation has led to a high increase in demand for infrastructure in Southeast Asia. Singapore has broad prospects for offshore and land-based applications. The 23H1 Southeast Asia region accounts for 47% of revenue, mainly distributed in Indonesia, Singapore, Thailand, etc. The 22FY/23H1 Indonesian subsidiary's revenue growth rate is 22%/118%, respectively. Since 2022, Shanghai Port has signed two new major contracts in Indonesia, totaling 343 million yuan. It is expected to receive more high-quality orders as the project progresses smoothly. Indonesia's infrastructure demand is mainly focused on transportation infrastructure construction and capital relocation plans. The first phase of Indonesia's capital relocation (2023-2024) is expected to cost 32.5 to 34 billion US dollars, which is expected to bring about an increase in regional infrastructure investment. Singapore's offshore land area has been expanded by 20%. It is expected to achieve the goal of increasing the land area by 100 square thousand US dollars in 2030. In November 2022, Shanghai Harbour won the bid for the Singapore LTA CR102 foundation improvement project. The contract amount was about 165 million yuan. The company has participated in Singapore's reclamation plans many times, and has rich project experience, laying the foundation for subsequent orders.

The advantages of foundation treatment technology are remarkable, promoting the high-quality development of the company

The company has three major technical systems: high vacuum compaction series technology, vacuum precompression series technology, and vibration compaction series technology, which are suitable for various complex geotechnical structures. The company's soft base treatment technology has advantages such as low cost and short construction period, which are widely praised by customers. The foundation business is located at the front end of the project. The execution period is short (3-12 months), accounts for a small proportion of the total investment, the repayment situation is good, and the company's foundation processing business usually needs to be customized according to the situation. The gross margin is maintained at around 35%, and the profitability is strong.

Risk warning: International business risk, macroeconomic risk, exchange rate fluctuation risk, stock price fluctuation risk, increased market competition, new project signing and construction progress falling short of expectations.