occurrences
On April 25, 2023, Shandong Road and Bridge released its 2022 annual report and the first quarterly report of 2023. In 2022, it achieved operating income of 65.019 billion yuan, YOY +13.03%, net profit of 2,505 million yuan and YOY +17.32%, after deducting net profit of 2,395 million yuan from non-Gwimo and +23.60% YOY. In the first quarter of 2023, the company achieved operating income of 10.555 billion yuan, YOY +0.28%, net profit of 237 million yuan and YOY +0.52%.
Key points of investment
Road and bridge construction continued to gain strength, and revenue in North China boosted sharply. The company's revenue in '22 was slightly below budget (-1.6%), mainly due to the impact of the Q4 pandemic on revenue growth. By business, in '22, the main business of road and bridge construction and maintenance projects generated revenue of 592.5/3.28 billion yuan respectively, YOY +14.2%/+3.9%. Road and bridge construction continued to gain strength, and the revenue share increased to 91.1% (+0.95 pcts). Looking at the subregion, East China contributed 73.7% of core revenue, an increase of 0.5 pct over '21. The company plans to distribute a cash dividend of 250 million yuan, accounting for 25.1% of the net profit of the mother, an increase of 15.9 pcts over '21. According to the company's annual report, the company plans to achieve revenue/net profit of 710.6/3.26 billion yuan in 23, YOY +9.3%/+2.6%, and future performance growth can be expected.
Gross margin continued to rise in '22, and operating cash flow improved markedly. The gross profit margin of the main road and bridge construction business in '22 was 11.7% (+0.47pct), which led to an increase in comprehensive gross margin to 12.19% (+0.42 pct), ROE increased by 0.16 pcts to 15.94%, and profitability increased steadily. The cost rate increased to 5.6% during the 22-year period (+0.1 pct), of which the R&D cost rate increased from 2.2% to 2.6%, mainly due to the establishment of more R&D projects than in '21. Impairment losses amounted to $521 million, an increase of $150 million over the year 21. Net operating cash flow recovered to 150 million yuan in '22, mainly due to the company's continuous strengthening of “two funds” and project measurement management to reduce the mismatch between sales receipts and capital payments.
Investment in infrastructure has increased rapidly in Shandong, and there are plenty of orders on hand. In '23, Shandong's transportation and water conservancy plans invested 310.60 billion yuan. The high-speed rail/highway mileage plan exceeded 2,800/8200 kilometers, and transportation infrastructure continued to increase. According to the “14th Five-Year Plan”, Shandong plans to reach 10000/9700/700 kilometers of highway/rail/rail transit mileage in 25, and there is broad scope for infrastructure development in the province.
In '22, the company signed new orders of 87.62 billion yuan, YOY -13.3%; Q1 in '23, new orders were 202.09 billion yuan, YOY +170%. New orders improved markedly. At the same time, on-hand orders reached 118.68 billion yuan, YOY +17.6%, ensuring the orderly release of future performance.
Profit forecasting and investment advice
I am optimistic about the development opportunities of the company's road and bridge construction and maintenance business under the “14th Five-Year Plan” in the province. We expect the company's net profit to be 26.13 (down 20.0%) /30.81 (down 26.2%) /3.678 billion yuan in 23-25. Based on the closing price on April 25, 23, 23-25 corresponds to PE 4.4/3.7/3.1 times, maintaining the “buy” rating.
Risk warning
Transportation investment in the province is not strong enough; raw material prices are rising; project repayment is slow.