3Q23 performance fell short of our expectations
The company announced 1-3Q23 results: revenue/net profit of 246.3/2.57 billion yuan, -8.6%/-1.3% year-on-year. The performance was lower than our expectations, mainly due to the year-on-year decline in railway revenue. Looking at a single quarter, 3Q23 revenue/net profit was 7.999/74 billion yuan, -6.6%/+11.3% year-on-year.
Railway business revenue declined year on year, while overseas business revenue grew at an upward rate. The railway/urban rail/overseas/general contracting/other business revenue of 1-3Q23 company was 117.7/57.6/10.7/59.5/85 billion yuan, respectively, -1.7%/-13.2%/+12.9%/-19.0%/+61.9%; among them, railway business revenue declined year-on-year, and we believe it was mainly due to a decrease in new orders signed in the previous period (new railway orders in 2021 and 2022 fell 9.6% year on year and up 0.76% respectively); The rapid year-on-year increase in overseas revenue was mainly due to new orders signed in the previous period Growth is fast.
Both gross profit margin and net profit margin improved year over year. 1-3Q23/3Q23 The company's comprehensive gross margin was 25.3%/26.1%, respectively, with a year-on-year increase of 2.7ppt/4.5ppt. We believe that changes in business structure are mainly driving up gross margin. The company's fee rate for the period 1-3Q23/3Q23 was 11.8%/13.5%, an increase of 1.6ppt/1.6ppt over the previous year. 1-3Q23/3Q23 The company's net interest rate was 10.4%/9.3%, an increase of 0.8ppt/1.5ppt over the previous year.
The use of working capital affects operating cash flow. The net operating cash flow of the 1-3Q23 company was 8.0 billion yuan, an increase of 620 million yuan over the previous year, mainly due to the use of working capital. As of the end of the 3Q23 period, the company's accounts receivable were 23.92 billion yuan, an increase of 990 million yuan over the previous year.
Development trends
The rising growth rate of new orders is expected to support the company's subsequent growth. 1-9M23 signed a new contract amount of 50.88 billion yuan, an increase of 12.0% year on year, a significant acceleration from the same period of the previous two years (1.1% and 0.8% year-on-year increases in the same period in 2021 and 2022, respectively). We believe that the increase in order growth is expected to support the company's subsequent revenue growth. Specifically, 1-9M23 has signed new contracts of 14.47 billion yuan, 9.49 billion yuan, 2.0 billion yuan, and 24.92 billion yuan respectively for railways, urban rail transit, overseas, and 24.92 billion yuan, respectively, compared with +10.5%, +13.8%, +1015.0%, and +4.6% respectively. Among them, new railway orders have picked up significantly compared to the previous two years. Considering the higher profit situation in the railway business, we believe it is expected to support the company's subsequent profit growth.
Profit forecasting and valuation
Maintain an outperforming industry rating. Considering the decline in railway business revenue, the 2023e profit forecast was lowered 4% to 3.72 billion yuan. Keep the 2024e earnings forecast unchanged. Currently, A shares are trading at 13x/12x2023e/24e P/E, and H shares are trading at 6x/6x 2023e/24e P/E. Considering profit cuts, the target price of A shares/H shares is lowered by 5%/8% to 5.60 yuan/3.06 HKD. A shares correspond to 16x/15x2023e/24e P/E, H shares correspond to 8x/7x 2023e/24e P/E, 20%/26% upward space.
risks
Downstream tenders fell short of expectations, and project repayment fell short of expectations.