Key points of investment
Leading domestic engineering consulting company, deeply involved in the industry for more than 40 years
The company's predecessor, Jiangsu Transportation Science Research Institute, was founded in 1978. It is the first A-share listed engineering consulting company in China. Its main business includes engineering consulting and engineering contracting business. It is committed to providing customers with high-quality one-stop comprehensive engineering consulting solutions, providing customers with a full process and specialized services for engineering construction from investment decisions to construction implementation. In the first half of 2023, the company's engineering consulting accounted for 95% of the main business, and the share of overseas business increased to 16.53%. The operating revenue of the overseas subsidiary EPISA increased year-on-year; revenue in the first three quarters of 2023 RMB 3.117 billion, a year-on-year decrease of 3.03%, and net profit to mother was RMB 229 million, a year-on-year decrease of 18.38%.
Backed by the Guangzhou State-owned Assets Administration Commission to vigorously expand business outside the province, the overseas layout helped the internationalization process company to be selected as one of the “Top 60 Chinese Engineering Design Companies” by the US “Engineering News Record” (ENR) and China's “Construction Times” for 19 consecutive years, ranking 10th in 2023. Due to intense competition in the engineering consulting and contracting industry, customers prefer local companies. Since its listing, the company has acquired companies many times, continuously broadened its business areas and regional scope. While stabilizing business in Jiangsu Province, it has entered the Zhejiang, Gansu, Fujian, Guangdong, Beijing and other markets, and obtained full industry chain qualifications in the field of engineering consulting. In 2021, the company's actual controller became the Guangzhou State-owned Assets Administration Commission to accelerate its layout in the Guangdong-Hong Kong-Macao Greater Bay Area market. The background of the Guangzhou State Assets Administration Commission helped the company use local government resources to enhance the company's competitiveness through collaborative development with Zhushi Group in 2023 The amount of engineering consulting business undertaken in Guangdong accounts for about 10% of the engineering consulting business within the Suzhou Jiaotong Technology Group. The company has accelerated the expansion of markets outside the province on the basis of Jiangsu, and the domestic share is expected to continue to increase. At the same time, in order to expand overseas business, the company successively acquired TestAmerica (shares transferred), a leading American testing company, and EPTISA, a Spanish engineering consulting company. EPTISA has rich operating experience in “Belt and Road” regions such as West Asia and Eastern Europe, and has achieved significant growth in 22 years.
Low-altitude infrastructure development has taken the lead. The two regions (Yangtze Delta+Guangdong, Hong Kong and Macao) +six major businesses have taken the lead in laying out the low-altitude economy, and have received great attention and support from national and local governments. The improvement of supporting industrial policies in various regions has provided strong support for the development of the low-altitude economy. Low-altitude infrastructure development has taken the lead, and design consulting companies have sped up the industrialization process of the low-altitude economy. On January 23, 2024, the company became a member of the Low Altitude Economy Innovation and Development Alliance to conduct research related to the low altitude economy with the Jiangsu Provincial Department of Industry and Information Technology and the Jiangsu Provincial Department of Transportation. The company relies on the actual controller of the Guangzhou State-owned Assets Administration Commission, which is conducive to enhancing the company's overall competitiveness in the Guangdong-Hong Kong-Macao Greater Bay Area and promoting the progress of low-altitude business in the Pearl River Delta. The company is deeply cultivated in the Yangtze River Delta+Guangdong, Hong Kong and Macao, and lays out six major business directions, including low-altitude application flight services, drone equipment testing and certification, low-altitude flight training, low-altitude economic industry development research, low-altitude flight infrastructure and supervision system construction, and planning and development of various application scenarios. It strives to become a high-end think tank technology enterprise with low-altitude economic development, fully benefiting from trillion-dollar low-altitude development opportunities.
Profit forecasting and valuation
First coverage, giving a “buy” rating. A leading domestic engineering consulting company, leading low-altitude infrastructure layout in the Yangtze Delta+Greater Bay Area. We expect the company's net profit to be 4.20, 5.33, and 695 million yuan respectively in 2023-2025, corresponding EPS of 0.33, 0.42, and 0.55 yuan/share, respectively, corresponding to PE 18, 14, and 11 times PE, respectively. We selected the General Design Institute, HuaShi Group, Shenzhen Jiaotong, and the low-altitude air traffic control business in Jiuzhou, Sichuan as comparable companies. The average PE in the same industry in 24 years was 30 times higher. Considering the large valuation variance of comparable companies, based on careful considerations, we gave the company a 2024 PE valuation 25 times, corresponding to a market value of 13.3 billion yuan and a target price of 10.55 yuan. Corresponding to the current market value, there is room for 74.01% increase. For the first time, we covered it and gave it a “buy” rating.
Risk warning
Low-altitude economic infrastructure construction falls short of expectations; policy support related to infrastructure and environmental protection falls short of expectations; the investment, merger and acquisition process faces performance risks.