Incident: The company disclosed the first quarter report of 2023, achieving revenue of 257 million yuan, a year-on-year decrease of 31.68%; Guimu's net profit was 4.144,800 yuan, an increase of 208.83% over the previous year; net profit after deducting non-net profit was -106.087 million yuan, an increase of 19.47% over the previous year. The comments on this are as follows:

Q1 performance in '23 turned a loss into a profit, and the number of new architectural design contracts signed increased year-on-year. Q1 The company's operating income fell 31.68% year on year to 257 million yuan, mainly due to a sharp decline in EPC business revenue; Guimu's net profit was 4.144,800 yuan, turning a loss into a profit compared to the same period last month. 1) There was a slight decrease in gross margin. Q1 gross margin was 14.61%, down 1.57 pct year on year; net margin was 0.46%, up 1.93 pct year on year. 2) The amount of new contracts signed in the architectural design business increased year-on-year. Q1 The amount of new contracts signed for the company's architectural design business was 368 million yuan, an increase of 50.72% over the previous year. Among them, new prefabricated design contracts were signed, an increase of 135.27% over the previous year, accounting for 55.30% of architectural design business contracts. The cost consulting business signed a new contract amount of 497.12,400 yuan, a year-on-year decrease of 2.69%; 3) Revenue from various businesses declined to varying degrees. Q1 Architectural design/cost consulting/general engineering contracting and full-process engineering consulting businesses achieved revenue of 1.89/0.29/39 billion yuan respectively, down 20.09/13.63/63/63/63% from the previous year. 4) Improved cash flow conditions. Q1 The company's operating cash flow was $82,715,500, which changed from negative to positive year-on-year, mainly due to increased sales repayments and collection and payment for contract construction projects, while the company controlled various costs and expenses. 5) There has been an increase in various fee rates. Q1 The company's expenses rate for the period was 22.96%, an increase of 5.73 pct over the previous year.

Among them, sales/management (including R&D) /finance expenses were 2.76/19.53/ 0.67%, respectively, up 0.55/4.89/0.29pct from the previous year.

There was a steady increase in annual results, and gross margin improved markedly. In 2022, against the backdrop of a complex external environment and increased competition in the industry, the company's performance increased steadily. Annual revenue fell 36.54% year on year to 1,825 million yuan, and the net profit of the mother increased 6.48% year on year to 112 million yuan. 1) Q4 performance loss. In the fourth quarter alone, the company's operating income fell 49.15% year on year to 529 million yuan, net profit of the mother increased 10.29% year on year to -319.96 million yuan, and net profit after deducting non-net profit increased 33.46% year on year to -293.44 million yuan.

2) The business structure was optimized, and gross margin increased sharply by 8.33 pct over the same period last year. In 2022, the share of general engineering contracting business revenue with a relatively low gross margin was 17.43%, a year-on-year decrease of 20.34 pct. This contributed to a significant increase in the company's gross margin. The annual gross margins and net profit margins increased 8.33/3.38pct year-on-year to 29.21/ 7.92%, respectively. Among them, gross margins for architectural design/cost consulting/general engineering contracting were 34.60/38.36/ 3.16%, respectively, up 2.8 5/3.42/0.48 pct over the previous year. 3) Revenue from various businesses and new contracts have all declined to varying degrees. Among them, revenue from the architectural design business fell 20.12% year on year to 1,229 billion yuan, revenue from cost consulting business fell 1.66% year on year to 22.312 million yuan, and revenue from general engineering contracting business fell 70.71% year on year to 31.818,300 yuan. The amount of new contracts signed for architectural design/cost consulting/general engineering contracting and full-process engineering consulting was $15.16/213/48 million respectively, a year-on-year decrease of 37.74/52.82/69.41%, respectively. 4) Operating cash flow is improving. In 2022, net cash flow from the company's operating activities was 265 million yuan, an increase of 11.41% over the previous year, mainly due to the company's control of various costs and expenses and the increase in collection and payment funds for contract construction projects. Net cash flows from investing and financing activities amounted to $0.84/105 million, respectively.

The prospects for prefabricated buildings are promising, BIM technology reserves are leading, and the company can be expected to develop in the future. In terms of prefabricated buildings, the Ministry of Housing and Construction issued the “14th Five-Year Plan” for the “14th Five-Year Plan” in 2022, stating that prefabricated buildings accounted for more than 30% of newly built buildings during the “14th Five-Year Plan” period. Under policy support, the market is expected to usher in rapid expansion. The company has carried out prefabricated building design research since 2004, which has a first-mover advantage. New prefabricated design contracts of 615 million yuan were signed in 2022, accounting for 40.52% of architectural design business contracts, a year-on-year decrease of 43.43%. In terms of BIM technology, the company initiated BIM special research in 2008, participated in the formulation of 14 national and municipal standards and research on 10 special topics, and has obtained 25 BIM-related patents (15 invention patents, 10 utility model patents) and 35 software copyrights. In 2022, the company and Zhongwang Software jointly set up a joint venture to jointly develop domestic BIM (Building Information Modelling) software. The two sides have complementary advantages to further enhance competitiveness in the BIM field.

Investment advice: The single-quarter results turned a loss into a profit, the signing of new contracts was positive, and the rating for increasing holdings was maintained. The company's net profit is expected to reach 173, 203, and 239 million yuan respectively from 2023 to 2025, up 54%, 17%, and 18%, respectively, corresponding to PE valuations 16, 14, and 12 times. The architectural design industry has a large market space and favorable policies. The growth rate of the number of enterprises is slowing down, and concentration is expected to increase. The company's design+assembly technology is “integrated”, efficiency improvement+regional layout; BIM+EPC is “two wings”, continuously building core competitiveness.

Risk warning: industry sentiment declines; industry competition intensifies; growth rate of prefabricated buildings declines; business expansion falls short of expectations; risk of impairment of accounts receivable; contract signing and completion falls short of expectations; mass loss of designers, etc.