Description of the event
The company announced the 2023 three-quarter report. In the first three quarters of 2023, the company achieved total operating income of 24.684 billion yuan, -8.39% year-on-year; net profit of 2,566 billion yuan, -1.35% year-on-year. Based on this calculation, 23Q3 achieved total operating income of 8.018 billion yuan, -6.35% year-on-year, and net profit of 742 million yuan, +11.26% year-on-year.
Incident comments
Performance improved in the third quarter, and profitability remained high. Looking at Q3, the company's net profit was 742 million yuan. Compared with the company's general engineering contracting business and urban rail business revenue in the first three quarters, the company's general engineering contract business and urban rail business revenue decreased by 18.99% and 13.22% year-on-year, mainly due to the company's strict control of business risks. Due to the slow funding of some projects and delays in the construction period, the construction revenue for this phase of the project decreased compared to the same period last year, leading to a year-on-year decline in total revenue; the total revenue of the company's railways, urban rail and overseas markets accounted for more than 75% in the first three quarters. The gross margin of this type of business was higher, driving the company's gross margin to increase by 25.33% in the first three quarters. Ratio +2.65pct. Q3 gross margin reached 26.12%, +4.53pct yoy; net profit margin reached 10.54%, +1.71 pct yoy.
In a situation where revenue declined year over year and expenses were relatively rigid, net interest rates increased year over year. As of the end of September 2023, the company's inventory and contractual liabilities remained high, demonstrating that the company's on-hand orders are full, subsequent inspections are worry-free, and profitability is expected to continue to improve as the company's revenue expands.
New orders continue to grow, and domestic and foreign demand is expected to resonate. From January to September 2023, the total amount of new contracts signed by the company was 50,883 billion yuan, +12.01% year-on-year, of which: the railway sector was 14.469 billion yuan, +10.49%; the urban rail sector, 9.493 billion yuan, +13.82%; the overseas sector, 2,002 billion yuan, +1014.95%; and the overall growth trend was 24.919 billion yuan, +4.64% year-on-year. The company is a major supplier of high-speed rail weak current system integration and urban rail signal system integration. It continues to top the list in the high-speed rail and urban rail fields, with a high market share. Overseas markets, the company's revenue in the first three quarters reached 1,067 million yuan, +12.87% year-on-year, and orders of 2,002 billion yuan, +1014.95% year-on-year. Overseas growth is expected to continue. In the domestic market, railway investment is expected to accelerate the growth of the company's orders in the railway sector; in the urban rail sector, the total number of tenders is expected to remain unchanged throughout the year, and the company's orders are expected to be released.
Demand for updates and replacements is gradually increasing, and the incremental process is more flexible or more flexible. Since the summer travel season, the country's passenger demand and the number of daily trains have remained high, reflecting that the demand side is relatively good. However, there are not many high-speed railways operating at a normal speed of 350 kilometers per hour across the country. At the same time, China Railway Group's profit improvement is also expected to drive capital expenditure. Since this year, projects such as the Onishi High Speed Rail have been speeded up, and it has been clearly stated that the train control system will be upgraded to CTCS-3 level. The speed of operation of the Guiguang High Speed Rail has been increased to 300 kilometers per hour after completion. It is expected that subsequent services such as speeding up, transformation, renewal, and replacement will be rapidly expanded. The company provides core train control technology and equipment for more than 95% of China's high-speed railways that have already started operation; accounting for about 40% of the domestic market share of urban rail transit control systems, stock replacement and maintenance market companies are expected to fully benefit. Furthermore, the construction cycle of the updated line is shorter, the pace of delivery and acceptance is faster, the profitability may be better, and the performance is more flexible.
Maintain a “buy” rating. We estimate that the company's net profit for 2023-24 will be 40.05 billion yuan and 4.483 billion yuan, corresponding to PE 12.8 and 11.4 times, respectively. Maintain a “buy” rating.
Risk warning
1. Investment in fixed assets falls short of expectations;
2. The risk of increased market competition.