1H23 miss amid property sector headwind
广联达(002410)
Glodon announced 2Q23 results: total revenue increased by 7.2% YoY to RMB1.76bn in 2Q23, below consensus estimate of RMB2.00bn. Net profit was RMB129.2mn in 2Q23, down 55% YoY, mainly due to the soft housing construction market and Glodon’s adjustment to its organizational structure. Total revenue/net profit was +10.7/-37.5% YoY in 1H23. In view of the long-lasting property sector headwind, the company revised down the full-year revenue/net profit growth guidance, and now expects total revenue/net profit to deliver teens percentage/positive YoY growth in FY23 (previous: +30/30% YoY). We lowered FY23-FY25 total revenue forecast by 7-16%, as the property sector headwind persists and organizational adjustment impacts short-term revenue growth. That said, Glodon’s leadership in China’s digital construction market remains intact and we expect its earnings growth to reaccelerate in FY24E (when we expect its focused strategy to deliver results). Maintain BUY with new TP of RMB45.10 on 9x FY23 EV/Sales.
Construction costing: soft demand impacts newly signed contract.Construction costing SaaS revenue grew by 34% YoY to RMB1.1bn in 2Q23,accounting for 81/60% of construction costing revenue/Glodon’s total revenue. Newly signed contract valued declined by 8.3% YoY to RMB1.57bn in 1H23, mainly due to the soft demand from property market (especially the SME clients) and the Glodon’s adjustment to its sales policy (shortening certain contract term from 3 years to 1 year). The new digital cost solution business was accumulating lighthouse customers and projects at its early development stage, with its revenue up by 123.7% YoY to RMB303mn in 1H23 (16% of costing SaaS revenue). Looking into 2H23, Glodon will focus on the expansion of KA customers such as state-owned enterprises and increase penetration rate into the large-enterprise market.
Construction management: shift focus to quality growth. Construction management revenue declined by 20% YoY to RMB316mn in 2Q23 and represented 18% of total revenue, as construction companies are more cautious on digital spending amid the property sector headwind. This has led to a longer deal negotiation and deployment cycle. To weather the sector headwind, Glodon will focus on both revenue and earnings growth (instead of just revenue growth) in the future, mainly through optimizing product structure and increasing sales of self-developed products.
Short-term pressure on margin. Overall GPM was flattish YoY at 85.6% in 1H23, as the increase in construction costing GPM was offset by the decline in construction management GPM (due to operating deleverage). The company continues to invest in PaaS and AI to solidify its leadership in the digital construction market, with its R&D expenses up by 30.7% YoY and accounting for 28.0% of total revenue in 1H23 (1H22: 23.8%). OPM was down 6.9pct YoY to 9.4% in 1H23. We lower our target price by 23% to RMB45.10 (previous: RMB58.41, ex-dividend), based on 9.0x FY23E EV/Sales, which is a discount to SaaS peer’s average (10.0x), reflecting our conservative view on the SaaS demand from property sector. Maintain BUY.
