Sector headwinds continue to impact growth
广联达(002410)
Glodon reported 3Q23 financial results: total revenue grew by 1% YoY toRMB1.71bn in 3Q23, below CMBI/consensus estimate of RMB1.89/2.00bn. 9M23total revenue was up 7% YoY to RMB4.78bn. Net income declined by 94% YoYto RMB13.4mn in 3Q23 (versus CMBI/consensus estimate of RMB279/351mn),primarily due to soft revenue growth and increase in R&D investments. 9M23 netincome decreased by 58% YoY to RMB278mn. In view of the persistingheadwinds in the housing construction market and softer-than-expected 9M23performance, we lower FY23-25 total revenue estimate by 6-8% and also trimFY23 net income estimate by 27%. We cut our target price to RMB29.75(previous: RMB45.10), based on 6.0x FY23E EV/Sales.
Construction costing: persisting sector headwinds impact growth.Construction costing revenue grew by 6% YoY to RMB1.3bn in 3Q23 (77%of total revenue), with its SaaS revenue up by 15% YoY to RMB963mn. Newlysigned contract value declined by 13% YoY to RMB968mn in 3Q23, asconstruction clients cut their digital spending given the headwinds in housingmarket. Despite the decline in new contract acquisition, the renewal rateincreased by c.3ppt YoY in 3Q23. For the new digital costing business, SaaSrevenue grew by 79% YoY to RMB454mn in 9M23, but newly signed contractvalue was down 22% YoY to RMB427mn, as the company focuses more onthe project deployment and lighthouse customer accumulation rather thannew customer acquisition in 2023.
Construction management: focus on quality growth. Constructionmanagement revenue dropped by 26% YoY to RMB291mn in 3Q23 (17% oftotal revenue), mainly due to the decline in housing new start (down 23% YoYin 9M23) and the tightening budget of construction enterprises. Goingforward, the company will take initiatives to drive more quality growth ofconstruction management business: 1) increase sales of higher-margin selfdeveloped products; 2) optimize customer structure to have higher revenuecontribution from infrastructure projects; 3) focus on the loss reduction andcash flow performance of the projects.
Expense control to drive margin recovery. Glodon’s net margin was downby 13.5ppt YoY to 0.8% in 3Q23, primarily due to the company’s investmentsin R&D and slowdown in revenue growth. S&M/R&D expenses rose 20/49%YoY to RMB522/546mn in 3Q23, equivalent to 30.5/31.9% of total revenue(vs. 25.8/21.6% of total revenue in 2Q23). In view of sector headwinds, thecompany has stopped hiring, controlled headcount growth and cutdiscretionary expenses. Supported by its quality growth strategy, we expectits net margin to bottom out from 3Q23 onwards.
Maintain BUY. We lower our target price by 34% to RMB29.75 (previous:RMB45.10), based on 6.0x FY23E EV/Sales, which is on par with the SaaSpeer’s average. Glodon’s leadership in China’s digital construction marketremains intact and we expect its earnings growth to reaccelerate in FY24E.Current forward 1-year PE and PS are both 2 S.D below 3-year average,offering decent safety margin. Maintain BUY.
