Event: The company released its three-quarter report for 2023. In the first three quarters, the company achieved revenue of 806.46 billion yuan, +1.0% year-on-year; net profit of 19.42 billion yuan, +3.5% year-on-year, net profit of 19.42 billion yuan, minus net profit of 18.4 billion yuan, +3.0% year-on-year. In the third quarter alone, the company achieved revenue of 265.40 billion yuan, +2.9% year-on-year; net profit of 5.77 billion yuan, +9.3% year-on-year, net profit of 5.54 billion yuan after deducting non-return net profit of 5.54 billion yuan, an increase of 8.2%.
Comment:
Effective cost control improved performance. The gross margin for the third quarter alone was +0.9pct year on year: in the first three quarters of 23, the company's comprehensive gross margin was 9.2%, +0.4 pct year on year; the period expense ratio was 4.7%, +0.3 pct year on year. In the third quarter, the company's comprehensive gross profit margin was 9.7%, +0.9pct year-on-year; the company strengthened cost control in the engineering contracting sector, increased investment in information technology research and development, and continued to reduce costs and increase efficiency. The operating cost for the single third quarter was 239.68 billion yuan, only +1.9% year-on-year. The comprehensive gross margin for the 2023Q1/Q2/Q3 single quarter was 7.8%/10.1%/9.7%, respectively, with a year-on-year ratio of +0.5pct/+0.1 pct/+0.9 pct, and profitability continued to improve during the year. In the third quarter alone, the company's period expense ratio was 5.3%, year-on-year +0.4pcts, of which the sales expense rate/management expense rate/R&D expense rate/financial expense ratio was 0.55%/1.98%/2.42%/0.37%, year-on-year +0.01 pct/+0.13 pct/+0.23 pct/+0.05pct.
Maintaining its advantages and keeping up with policies, new orders for rail transit and water conservancy increased: From January to September '23, the company signed a new contract amount of about 1786.2 billion yuan, or 53.96% of the annual plan, a decrease of 3.12% over the previous year. On the basis of last year's high base, the year-on-year growth rate of newly signed contracts declined slightly. While strengthening and improving traditional businesses such as urban rail transit, the company is also strengthening the contracting of projects such as flood prevention, water resources, soil and water conservation, and ecological construction. From January to September '23, it signed a new contract of 56.15 billion yuan for urban rail projects, an increase of 21.8% over the previous year, and a new contract of 52.69 billion yuan for water resources and water transport projects, an increase of 35.9% over the previous year. On October 24, the National Standing Committee deliberated and passed a bill to issue 1 trillion more treasury bonds. Eight major funds were invested in water conservancy projects (backbone flood control projects, other key flood control projects, irrigation area construction and renovation, and key soil erosion control projects, and actions to improve urban drainage and waterproofing capacity). The increase in financial security is expected to accelerate the progress of water conservancy projects, help accelerate the transformation of the company's high water conservancy and water transport project orders and guarantee growth in business performance.
The controlling shareholders actively increased their holdings, demonstrating their confidence in the company's steady future development: The company announced the controlling shareholder China Railway Construction Group's holdings increase plan on October 16. It plans to increase its holdings of the company's shares for 6 months from the date of the announcement. The cumulative increase ratio is 0.1%-0.25% of the total share capital, and the total amount does not exceed 300 million yuan. As of October 29, China Railway Construction Group has increased its holdings of the company's A shares by a total of 5.25 million shares, accounting for about 0.04% of the company's total share capital.
Profit forecast and valuation rating: The company's operations are progressing steadily, and gross margin continues to rise. We maintain the company's 23-25 EPS forecast at 2.18/2.44/2.74 yuan, and both A/H shares maintain the company's “buy” rating.
Risk warning: The growth rate of infrastructure investment fell short of expectations, and the decline in real estate exceeded expectations.