We maintain "Accumulate" but lower TP to HK$3.70. We slightly reduce our forecasts for China CRSC's (the "Company") 2023-2025 shareholders' net profit to RMB3,743 mn (-4.1%) / RMB4,200 mn (-2.1%) / RMB 4,714 mn (-1.0%), respectively. We slightly reduce our forecasts for the Company's earnings per share in 2023/ 2024/ 2025 to RMB0.345 (-4.1%), RMB0.388 (-2.1%), and RMB0.436 (-1.0%), respectively. Our TP represents 10.0x/ 8.9x/ 7.9x 2023-2025 PE ratio and 0.8x 2023 PB ratio.
The Company' revenue decreased with gross profit margin continued to improve. The Company's revenue in the first months of 2023 was RMB 24.63 bn, a decrease of 8.60% YoY, mainly due to the decrease in revenue from urban transit business and construction projects. The Company's gross margin increased 2.6 ppts YoY to 25.3% in the first nine months of 2023. The Company has significantly improved its gross profit margin and has good control over its expense ratio. Therefore, the Company's shareholders' net profit in the first nine months of 2023 reached RMB2,566 mn, and the decline narrowed to 1.4% YoY. We believe that the Company's gross profit margin may maintain at its current level in 4Q23.
The Company's newly-signed orders increased, which may boost its performance in 2024. In the first nine months of 2023, the aggregate value of newly-signed orders of the Company amounted to RMB50.88 bn, representing an increase of 12.01% YoY, among which, the value of newly-signed orders in railway sector amounted to RMB14.47 bn, representing an increase of 30.15% YoY; the value of newly-signed orders in urban transit sector amounted to RMB9.49 bn, representing a decrease of 13.82% YoY. The increase in new orders may ensure revenue growth for the Company in the next two years. The Company's order cycle is about 3 years, and 97% of its sales will be recognized as revenue in about 2 years. As China's rail passenger traffic has been improving significantly, we believe that new orders of the Company will maintain rapid growth. Therefore, we expect that optimistic growth of new orders may be reflected in revenue growth in 2024 and 2025.
Catalyst: Demand of repair and maintenance for rail transportation is increasing.
Risks: Intensified competition in the industry; insufficient overseas demand; unexpected price movement in raw materials.