Introduction to this report:
2023 PE 3.9 times (past high PE average of 20 times/2015 high 24 times), PB 0.45 times (average of the eight major construction central enterprises 0.66 times, up to 0.96 times). The number of new project contracts signed in the first three quarters increased by 13%, of which the number of new contracts for water conservancy and water transport increased by 36%.
Key points of investment:
Maintain an increase in holdings. Affected by the decline in the total number of tenders for PPP projects, the downgraded forecast for 2023-2025 EPS 2.07/2.27/2.44 (previously 2.21/2.44/2.71) yuan will increase 6%/9%/8%. Due to the downturn in the valuation system for market-related sectors, the target price was lowered to 14.3 yuan, corresponding to 6.9 times PE in 2023.
The profit increase of 3.5% in the first three quarters fell short of expectations, and the Q3 quarterly increase accelerated by 9.3%. (1) Revenue for the first three quarters increased 1%, Q1-Q3 increased 3.4/-3.1/ 2.9% in the single quarter, net profit of 19.42 billion yuan increased 3.5%, Q1-Q3 increased 5.1/-1.6/ 9.3% in the single quarter, and net profit after deducting 18.43 billion yuan increased 3%. (2) The gross profit margin for the first three quarters was 9.17% (+0.45pct), the expense ratio was 4.70% (+0.29pct), the net profit margin was 2.41% (+0.06pct), weighted ROE 7.35% (-0.46pct), and the balance ratio was 75.59% (-0.35pct).
The operating cash flow for the Q3 quarter increased by 42.3 billion yuan year over year, and current payments increased by 20 percentage points over the same period last year.
(1) Operating cash flow for the first three quarters was 43.18 billion yuan (same period in '22 - 1.17 billion yuan); Q1-Q3 for the single quarter was -392.2/198.7/-23.84 billion yuan (-411.0/214.9/18.44 billion yuan for the same period in '22). The increase in outflow was due to the impact of the base figure and the company's response to policy calls to increase upstream and downstream payments. Cash flow is expected to improve throughout the year after Q4 settlement. (2) The quarterly revenue ratio for Q3 was 113% (112% for the same period in '22), and the payout ratio was 127% (107% for the same period in '22). (3) Total impairment losses for the first three quarters - 3.9 billion yuan (same period in '22 - 3.1 billion yuan).
New contracts fell 3% in the first three quarters, and the controlling shareholders plan to increase their holdings by no more than 300 million yuan. (1) New signings of 1.79 trillion yuan fell 3% in the first three quarters (up 18% in the same period in '22), and new orders signed in Q1-Q3 alone increased 16/-5/-17%. (2) New contract contracts of 1.21 trillion yuan increased by 13% in the first three quarters, of which 52.7 billion yuan for water resources and water transportation increased 36%. The investment and operation of 211.8 billion yuan fell 43% due to a reduction in PPP projects. Real estate sales increased 10% to 74.7 billion yuan. (3) The controlling shareholder, China Railway Construction Group plans to increase its A-share holdings of the company by 0.1-0.25% within 6 months. Currently, it has increased its holdings by 0.04%.
Risk warning: macroeconomic policies have been tightened beyond expectations, infrastructure investment has fallen short of expectations, etc.