Matters:
China Railway Construction announced the three-quarter report for 2023:23Q1-3 achieved operating income 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, +3.5% year-on-year; and realized net profit of 18.43 billion yuan, +3.0% year-on-year.
Commentary:
Performance grew steadily, and gross margin continued to be optimized. 23Q1-3 achieved revenue of 806.46 billion yuan, +1.0% year-on-year, of which Q1-3 achieved revenue of 2,735.4, 2,675.2 billion, and 265.4 billion yuan respectively, with +3.4%, -3.1%, and +2.9% year-on-year respectively. The Q3 revenue growth rate improved. The gross margin and net profit margin of 23Q1-3 companies were 9.2% and 2.9%, respectively, +0.4pct and +0.1pct, respectively. Among them, Q1-3 gross margins were 7.8%, 10.1%, and 9.7%, respectively, +0.5, +0.1, and +0.9 pct, respectively; of these, Q1-3 net profit margins were 2.2%, 2.9%, and 2.2%, respectively, +0.03, +0.05, and +0.13pct year-on-year. The gross margin of 23Q1-3 increased slightly year-on-year, mainly due to declining raw material prices and improved profitability in the engineering contracting business.
Expense rates have increased slightly, and cash outflows have increased. The 23Q1-3 company's expense ratio was 4.7%, +0.3pct year on year; of these, sales, management, and financial expense rates were 0.59%, 3.79%, and 0.32%, respectively, +0.05pct, +0.21pct, and +0.02pct. The net operating cash flow of the 23Q1-3 company was 43.18 billion yuan, an increase of 42.02 billion yuan over the previous year, of which the net outflow for Q3 was 23.84 billion yuan, an increase of 42.28 billion yuan over the same period last year, mainly due to the influence of the same period of the same period. It is expected that the annual cash flow will be corrected after Q4 settlement; the revenue ratio is 104.1%, +2.6 pct over the previous year, and the payout ratio is 110.2%, and +7.9pct, all of which have increased.
The total amount of new contracts signed fell slightly, and orders for water conservancy and urban rail increased. The total amount of new contracts signed by 23Q1-3 was 1,760.2 billion yuan, -3.1% year-on-year. Among them, Q1-3 signed new orders of 5,396.3, 8,194.4, and 427.13 billion yuan respectively, +15.8%, -5.3%, and -16.7%, respectively. 1) By industry type, the company's Q1-3 engineering, investment and operation, environmental protection, design, industrial manufacturing, housing development, and material logistics contracts were 12079, 2118, 875, 192, 217, 757, and 144 billion yuan respectively, compared with +13.1%, -43.0%, -24.5%, -12.0%, -8.5%, +10.1%, and -10.5%. The year-on-year decline in investment and operation business was mainly due to market impact, and the total volume of tenders for PPP projects decreased. In terms of housing development, the pace of the company's land storage has slowed down, and the new housing development contract has picked up somewhat due to the marginal relaxation of policies. 2) In the infrastructure business, the performance of water conservancy and urban rail was outstanding. New contracts for housing construction, highways, railways, municipal administration, urban rail, mining, water resources, water transport, and electricity were 6549, 2383, 1398, 1899, 562, 236, 527 and 70.1 billion yuan respectively, +7.8%, -0.6%, -21.1%, -28.7%, +21.8%, -35.5%, +35.9%, and -7.3%. The rapid growth in water resources business was mainly due to increased investment in national water network construction, and the company's strengthening of contracts for flood prevention, water resources, soil and water conservation and ecological conservation projects。 3) By region, the amount of new contracts signed by 23Q1-3 companies domestic/overseas was 1,6690/117.1 billion yuan, respectively, -1.4% and -22.0% of the same period last year.
Investment advice: Revenue performance has increased steadily, and profit margins have continued to improve. The company's traditional engineering industry is developing steadily. We maintain the company's 2023-2025 EPS forecast of 2.17/2.45/2.74 yuan/share. The corresponding PE is 3.6x/3.2x/2.9x, respectively. The company is one of the leading central enterprises and operates steadily. Considering that the company's valuation center for the past 5 years was 5.6xPE, according to the historical valuation law, we gave the company 5xPE for 2023, corresponding to the target price of 10.85 yuan/share, maintaining a “push” rating.
Risk warning: Project progress falls short of expectations, infrastructure investment falls short of expectations, and real estate recovery falls short of expectations.