Event description

Daqin Railway released its mid-2023 report that the company achieved an operating income of 40.441 billion yuan, an increase of 3.9% over the same period last year, and a net profit of 7.538 billion yuan, an increase of 3.0% over the same period last year. In the second quarter of 2023, the company achieved an operating income of 20.602 billion yuan, a decrease of 0.3% over the same period last year, and a net profit of 3.883 billion yuan, a decrease of 10.7% over the same period last year.

Event comment

2023H1 freight transport operates at a high level, passenger transport resumes growth: 2023H1, railway passenger flow shows a trend of restorative growth, and the national railway has sent a total of 1.69 billion passengers, an increase of 123% over the same period last year. In terms of freight transport, in order to ensure the transportation of key materials such as coal and grain, the state railway has sent a total of 1.93 billion tons of goods. 2023H1, the company delivered 343 million tons of goods, down about 2.1 percent from the same period last year, accounting for 13.74 percent of the country's total railway freight delivery of 2.497 billion tons, and continued to occupy an important position in the national railway freight market. The company delivered 19.17 million passengers, an increase of about 92.9 percent over the same period last year. As the passenger transport business resumed and the freight business remained high, 2023H1 achieved an operating income of 40.441 billion yuan, an increase of 3.9% over the same period last year. On the cost side, the maintenance time of the Daqin line was slightly longer, the cost related to passenger transport business increased, and the operating cost increased by 3.7% to 30.157 billion yuan over the same period last year. On the expense side, the sales rate and R & D rate were stable, the management rate increased slightly 0.2pct, the interest on deposits and receivables increased, and the financial rate decreased 0.7pct. The total period expenses (management expenses, sales expenses, R & D expenses and financial expenses) totaled 442 million yuan, which decreased by 30.0% compared with the same period in 2022. Because the increase in income was greater than the cost, the premium rate decreased, and the company realized a net profit of 7.538 billion yuan. A year-on-year increase of 3.0%.

2023Q2 freight transport declined slightly and passenger transport resumed growth: 2023Q2, the national railway freight transport volume increased by 16.4% compared with 2019Q2, but the prosperity decreased by 2.1% compared with 2022Q2. After the optimization of epidemic prevention policy, passenger transport gradually returned to normal, with an increase of 210.1% compared with 2022Q2 and 6.6% compared with 2019Q2. 2023Q2, the overhaul time of Daqin Line, the company's core line, was prolonged, realizing freight volume of 103 million tons, down 2.1% from the same period last year. Passenger transport business is expected to have a good recovery and growth. Finally, the company realized operating income of 20.602 billion yuan, a decrease of 0.3% over the same period last year. The company's operating cost rose 4.5% to 15.319 billion yuan compared with the same period last year. Benefiting from the increase in deposit interest, the company's expenses during the period decreased by 29.8% to 214 million yuan. In the end, the company realized a net profit of 3.883 billion yuan, a decrease of 10.7% compared with the same period of 2022Q2.

High dividend and low valuation, high coal demand boom: we emphasize in "long-term reverse assets, stable compound income": China is mainly self-sufficient in coal, but regional imbalance brings long-distance transport demand, with the help of the advantages of different transport modes, build a transport channel of "transporting coal from west to east" + "transporting coal from north to south". There are four channels for "transporting coal from west to east". The Daqin railway is born with the advantage of low cost, and the transport volume is expected to remain high for a long time. The factors that suppress the long-term returns of Daqin Railway are expected to be reversed: 1) with extension and endogenous investment, Daqin Railway has built a transportation network with integrated transportation, and inefficient investment is expected to be reduced; 2) Railway freight prices are subject to policy supervision. with the characteristics of counter-cyclical regulation, with rising labor costs and huge losses of the National Railway Group, the possibility of national railway freight price adjustment is enlarged. At this stage, the freight price of Da-Qin Railway is still subject to policy control, considering that the capacity utilization rate is high, if the future freight implementation of market-oriented reform, profits may have upward momentum. Considering the high demand for coal downstream, we expect the traffic volume of Daqin Railway to remain high. It is estimated that the attributable net profit from 2023 to 2025 will be 131.8 yuan, 134.8 yuan and 13.68 billion yuan respectively, corresponding to 8.5,8.3 and 8.2 times PE respectively. In the past few years, the company's cash dividend is about 0.48 yuan per share.

Risk hint

1, reinvestment risk; 2, freight rate adjustment risk; 3, labor cost risk.