We maintain the "collection" but lower the target price to HK $3.70. We slightly lower the forecast of shareholders' net profit of China General account ("the Company") from 2023 to 2025 to 3.743 billion yuan (- 4.1%), 4.2 billion yuan (- 2.1%) and 4.714 billion yuan (- 1.0%). We slightly lowered the company's earnings per share forecast for 2023 / 2024 / 2025 to 0.345 yuan (- 4.1%), 0.388 yuan (- 2.1%) and 0.436 yuan (- 1.0%). Our target price corresponds to a price-to-earnings ratio of 2023-2025 and a price-to-book ratio of 0.8 times 2023.
The company's revenue fell and gross profit margin continued to improve. The company's revenue in the first nine months of 2023 was 24.63 billion yuan, down 8.60% from a year earlier, mainly due to a decline in revenue from urban rail business and construction projects. In the first nine months of 2023, the company's gross margin rose 2.6 percentage points year-on-year to 25.3%. The company's gross profit margin has been significantly improved and the expense rate has been well controlled. As a result, the company's shareholder net profit for the first nine months of 2023 was 2.566 billion yuan, a year-on-year decline of 1.4 per cent. We believe that the company's gross margin is likely to remain at its current level in the fourth quarter of 2023.
The company's new orders are rising, which is expected to boost performance in 2024. In the first nine months of 2023, the total amount of new orders signed by the company reached 50.88 billion yuan, an increase of 12.01 percent over the same period last year, including 14.47 billion yuan for the railway sector, an increase of 10.49 percent over the same period last year, and 9.49 billion yuan for the urban rail sector, an increase of 13.82 percent over the same period last year. The increase in newly signed orders is expected to ensure the company's revenue growth over the next two years. The company's order cycle is about 3 years, and 97% of sales are recognized as revenue in about 2 years. With the significant improvement in rail transit passenger flow in China, we believe that the company's newly signed orders will continue to grow rapidly. Therefore, we expect the positive growth in newly signed orders to be reflected in revenue growth in 2024 and 2025.
Catalyst: the demand for repair and maintenance of rail transit continues to increase.
Risks: increased competition in the industry; insufficient overseas demand; higher-than-expected fluctuations in raw material prices.