Performance is under pressure. There are sufficient orders on hand. They are optimistic that the company's medium- to long-term growth potential will achieve revenue of 18.28 billion yuan, -11% year-on-year, net profit of 480 million yuan, -31.6% yoy, and non-net profit of 468 million yuan, -7.0% yoy. New orders signed by 23Q1/Q2 were 7455/1,682 billion yuan, respectively +171%/-40% from the previous year. 23H1's unsigned orders were 14.378 billion yuan, +69% year-on-year, and the total number of contracts for projects under construction was 182,381 billion yuan, with sufficient orders on hand.
The company focuses on digital intelligence transformation, forming three digital technology application scenarios: smart construction sites, smart maintenance, and smart factories, and is optimistic about the company's medium- to long-term growth potential.
The gross margin has increased slightly, and I am optimistic about the company's maintenance business layout
By business, 23H1 road and bridge engineering/maintenance/other businesses achieved revenue of 16.0.35/20.94/152 million, respectively, compared to -9.94%/+4.2%/-8.8%. In terms of gross margin, road and bridge engineering/maintenance gross margin was 7.92%/5.66%, respectively, with year-on-year changes of +0.46 pct/+1.3 pct. By region, domestic/overseas revenue was 176.2/665 billion, -11.35%/+11.39% year-on-year, and gross margin was 7.79%/5.37%, a year-on-year change of +0.4pct/-1.61 pct. Overall, 23H1's gross margin was 7.7%, +0.37 pct over the previous year. In 2022, 6 new maintenance bases were built, and a total of 22 maintenance bases have been landed, including 12 market-based maintenance bases and 10 affordable maintenance bases. Zhejiang Communications Technology has taken on about 80% of the market share of expressways operated in Zhejiang Province. In '22, the maintenance sector signed more than 5 billion yuan in new contracts, and the influence of maintenance brands continues to increase. We are optimistic about the company's upstream and downstream industrial chain layout and diversified business development, and are waiting for the company's performance to be released.
The overall fee control effect was good. There was a lot of contract debt, verifying that new orders signed increased 23H1. The company's cost rate during the period was 3.66%, year-on-year -0.59pct. Among them, the sales/management/R&D expense ratio was 0.04%/1.54%/1.87%. The year-on-year changes were -0.01 pct/+0.14 pct/-0.16 pct, respectively, and the fee control effect was good. Asset and credit impairment losses were $43 million, an increase of $45 million over 22H1. Under the combined influence, the company's net interest rate was 2.77%, -0.72 pct year-on-year. The net CFO amount was -2,982 million, an increase of 44 million dollars over the previous year, and the revenue ratio/net to cash ratio was 95%/107%, respectively, and +3.11%/+1.24%, respectively.
23H1 contract liabilities were $2.53 billion, an increase of $1,539 million over 22H1, mainly in advance payments for engineering projects.
Local state-owned enterprises with high dividends will take off again and maintain their “buying ratings”
The company announced its shareholder return plan for the next three years (2023-2025). Under the condition that cash dividends are met, ① the profit distributed in cash each year is not less than 10% of the distributable profit for that year; ② The cumulative profit distributed in cash in the last three years is not less than 30% of the profit that can be distributed in the last three years. The compound growth rate of the company's cash dividends in 18-22 was 18%, and the cash dividend ratio in '22 reached 20%, increasing the return on investment. As of the China Interim Report, Great Wall Life Insurance, the company's second-largest shareholder, held 6.67% of shares. The insurance capital listing shows investment value. Considering that the investment volume of the Zhejiang Transportation Plan increased by more than 40% in the three years after the “14th Five-Year Plan,” we expect the company's net profit to be 1,621/19.26/2,325 billion yuan in 23-25. Approval will grant the company 9 times PE in 23, corresponding to a target price of 5.61 yuan, and maintain the “buy” rating.
Risk warning: downstream demand falls short of expectations; order execution falls short of expectations; digital intelligence transformation falls short of expectations; cost control falls short of expectations; potential security issues.