We maintain "Buy", but reduce TP to HK$3.88. We reduce our forecast on Horizon Construction Development’s (the "Company") shareholders' net profit in 2023-2025 to RMB931 mn (-8.2%) / RMB1,158 mn (-11.7%)/ RMB1,336 mn (-17.8%), respectively. We forecast earnings per share in 2023-2025 to be RMB0.291, RMB0.362, and RMB0.418, respectively. Our TP represents 12.0x/ 9.7x/ 8.4x 2023-2025 PE ratio and 1.3x 2023 PB ratio. We are optimistic about the Company’s revenue growth. However, due to the decline in the Company’s gross profit margin in 1H23, we lower our expectations on its net profit, and therefore reduce our TP to HK$3.88.
　　The Company achieved positive growth in 1H23. The Company's revenue in 1H23 was RMB4.2 billion, an increase of 18.0% YoY, basically in line with our expectations. The Company achieved adjusted net profit of RMB318 million in 1H23, an increase of 9.8% YoY. Operating lease services achieved revenue of RMB2.5 billion, an increase of 8.7% YoY. Engineering and technical services achieved revenue of RMB1.1 billion, an increase of 8.1% YoY. Platform and other services achieved revenue of RMB559 million, an increase of 174.0% YoY.
　　Overall gross profit margin of the Company declined. In 1H23, the gross profit margin of the Company was 34.1%, representing a decrease of 4.3 ppts YoY, mainly due to the decrease in gross profit margin of operating lease services. The gross profit margin of the Company was less than our expectations. With the overall weak downstream demand, market competition has intensified. Hence, the market rental price of materials related to the neo-formwork system and the neo-excavation support system fluctuated and dragged down the gross profit margin of operating leasing services. However, the utilization rate of the Company’s equipment improved in 1H23, especially in the aerial work platform. We believe that the utilization rate will continue to improve in 2H23.
　　The platform and other services segment maintained rapid growth. Platform and other services achieved significant increases in both revenue and gross profit margin. Platform and other services achieved revenue of RMB559 million, an increase of 174.0% YoY. The gross profit margin of the Company’s platform and other services was 37.4%, representing an increase of 12.7 ppts YoY. Although the proportion of revenue from platform and other services was relatively low, we believe that the Company's advantages in operations will enable the platform and other services to continue to grow rapidly. The Company will balance the proportion of self-owned assets and operating third-party assets to achieve a better development.
　　Risks: Downstream demand may decline; market competition may intensify.