Core point of view: 3Q net profit meets expectations and benefits from passenger transport recovery
According to the three-quarter report of Daqin Railway, the revenue of Q1-Q3 in 2023 is 60.797 billion yuan (yoy+3.46%) and the net profit is 11.111 billion yuan (yoy+2.78%). Among them, Q3 realized a net profit of 3.574 billion yuan (yoy+2.26%), in line with our expectations (3.608 billion yuan). The increase in Q3 net profit is mainly due to the increase in the income of railway investment and the improvement of passenger transport. We estimate that the company's net return profit from 2023 to 2025 will be 12912.7 billion yuan. We still adjust the target price to 7.73 yuan (previous value: 7.82 yuan) based on 9.2x 2023E PE (the company's average PE 8.6x in 2018-2022 plus twice the standard deviation to reflect the increased demand for high dividend allocation under the "asset shortage"). Maintain "buy".
The traffic volume of Q3 on Daqin line decreased by 2.1% compared with the same period last year, which was squeezed by imported coal shunt and hydropower.
The peak season of railway freight transport is not busy. In July / August / September, the Datong-Qinhuangdao line achieved an average daily transport capacity of 119,131,000,000 tons (full capacity is about 1.25 million tons), a decrease of 2.1 per cent compared with the same period last year. From July to September, national coal production increased by 2.0% compared with the same period last year, of which coal production in Shanxi / Inner Mongolia / Shaanxi, the main source of goods on the Da-Qin Line, increased by 3.2% in July-August compared with the same period last year. Total power generation rose 5.3 per cent from July to September compared with the same period last year, including 2.7 per cent for thermal power and 10.7 per cent for hydropower (Wind). Hydropower rose sharply from a low base caused by last year's drought, squeezing the space for thermal power. Low overseas coal prices have spurred an increase in import demand, which rose 46% from July to September compared with the same period last year (National Energy Administration). Imported coal poses competitive pressure on railways. At the same time, 3Q flood season also has a certain disturbance to the supply of goods on the Daqin line. To sum up, from July to September, the traffic volume of Daqin railway decreased or increased compared with the same period last year, and the investment income of Q3 of the passenger transport improvement company increased by 19% compared with the same period last year, or the profit of Shuohuang railway improved. From July to September, the shipping capacity of Shenhua Huanghua Port and Tianjin Coal Terminal increased by 7.1% (Wind) compared with the same period last year, based on which we expect Shuohuang Railway Q3 to record year-on-year growth. Q3 railway passenger travel data is good. This year, the national railway passenger volume of Q1/Q2/Q3 has returned to 113% of 93x107 in the same period in 19 years (State Railway Administration). Datong-Qinhuangdao Railway Company's passenger revenue / commissioned transport service revenue accounts for about 10.3 per cent of its main business income (1H23), both of which have benefited from the recovery in travel.
The current inventory is still at a high level.
In late October, coal stocks in CCTD mainstream ports were 18% higher than the average for the same period 2020-2022 (iFinD). Under the influence of high inventory downstream and the competitive pressure of imported coal, the freight volume of Q4 Daqin railway is likely to continue the trend of the first three quarters. At the end of September, the company's contract liabilities (railway freight prepayment) fell 22% from a year earlier and 5% from the same period in 21 years, indicating weak demand for Q4 coal transport. We keep the forecast volume of Daqin Line from 2023 to 2025 unchanged.
Risk tips: the economy continues to be in the doldrums, Haoji / Tangbao / Wari railway diversion volume, railway freight reduction, Daqin debt to equity dilution EPS.