1H23 results in line with our expectations

Jinggong Steel Building announced its 1H23 results: Revenue rose 6.1% YoY to Rmb7.72bn and attributable net profit grew 2.5% YoY to Rmb391mn （on a pre-adjustment basis last year）。 In 2Q23, revenue rose 12.1% YoY to Rmb4bn and attributable net profit grew 4.2% YoY to Rmb211mn, in line with our expectations.

The firm’s GM in 1H23 rose 0.1ppt YoY to 14.2%. Overall expense ratio rose 0.4ppt YoY to 8.9%, with selling, G&A, and R&D expense ratios up 0.1ppt, 0.5ppt, and 0.1ppt YoY. Attributable net margin fell 0.2ppt YoY to 5.1%. Net operating cash inflow turned positive YoY to Rmb65.63mn （vs. a net outflow of Rmb394mn in 1H22）。 Net investing cash outflow was Rmb121mn, narrowing slightly YoY.

Trends to watch

Strong growth in new orders in 1H23; high growth in EPC and prefabricated building orders. We estimate revenue growth and GM of the firm’s steel structure business remained stable in 1H23. New contracts in 1H23 grew 34.5% YoY to Rmb11.2bn, with new contracts for engineering, procurement and construction （EPC） and prefabricated building projects growing 157% YoY to Rmb2.2bn.

Zhejiang province has formulated an action plan to develop advanced manufacturing industry clusters, planning to attract more than 100 major manufacturing projects and more than 20 major foreign-funded projects per year. We believe this will support demand for the firm’s steel structure business. New contracts for the industrial joint-venture chain business grew 596% YoY to Rmb150mn in 1H23. We expect the firm’s stable industrial customer base to help secure contracts in the future.

Watch progress in BIPV and energy storage businesses. The firm signed a cooperation agreement with State Power Investment Corporation in early 2023 to establish a joint venture to promote the development of building-integrated photovoltaics （BIPV） under the develop-invest-build- transfer model. The firm has signed cooperation agreements with companies such as Minth Group and Changhong Polymer Scientific and Technical for distributed PV power projects. In addition, the firm continues to develop the molten salt energy storage business and expand its presence in the industrial and commercial energy storage business. We　expect the firm to gain advantages in the BIPV business thanks to its extensive industrial customer base, and suggest watching progress in this business.

Financials and valuation

We keep our earnings forecasts unchanged. The stock is trading at 8.8x 2023e and 7.3x 2024e P/E. We maintain OUTPERFORM and our target price of Rmb4.78, implying 11.3x 2023e and 9.4x 2024e P/E and offering 28% upside.

Risks

Steel structure and BIPV project orders disappointing.