Overall performance was in line with expectations, and cash flow was slightly under pressure
Revenue for the first three quarters of 2023, net profit from net profit from net income from net profit of 4673.3/81.8/net profit from non-return, was 4673.3/81.8/7.95 billion yuan, +17.7%/+21.9%/+20.4% year-on-year, and the overall growth rate was in line with expectations. Looking at a single quarter, 2023Q3 revenue/net profit from net income from net income from net income from net income of net income was 1328.66/9.66/968 billion yuan respectively, +23.2%/+15.24%/-1.81% of the same period last year.
In terms of profit, the gross margin/net profit margin for the first three quarters of 2023 was 9.22%/1.75%, respectively, -0.4pct/+0.06pct over the same period last year. The 2023Q3 gross margin/net profit margin was 9.12%/0.73%, year-on-year -1.23pct/-0.05pct, and -0.01pct/-1.3pct month-on-month. The profit margin level declined.
In terms of cash flow, Q3 operating cash flow was 7.96 billion yuan, net outflow increased by 6.22 billion yuan over the previous year. It is estimated that cash flow was under pressure mainly due to the increase in the size of accounts receivable. As of the end of 2023Q3, the company's receivable notes and accounts were 127.398 billion yuan, an increase of 16.08 billion yuan over the previous year.
Furthermore, the contract debt ended at the end of the third quarter of 2023 was 67.805 billion yuan, a year-on-year increase of -10.34 billion yuan, an increase of 3.43 billion yuan over the end of Q2. Project settlement progress in the third quarter improved marginally.
The year-on-year slowdown in the signing of new contracts is expected to benefit from the landing of trillion treasury bonds and the amount of new contracts signed from January to September 2023 was 981.93 billion yuan, an increase of 5.0% over the previous year.
The amount of new contracts signed in 2023Q3 was 260.04 billion yuan, a year-on-year decrease of 9.8%. Among them, the amount of new contracts signed in July-September was 789.4/871.9/93.17 billion yuan respectively, +1.8%/-18.8%/-9.8% year-on-year, respectively, and the amount of new contracts signed in August and September slowed year-on-year.
By business, of the newly signed projects of more than 50 million yuan in the third quarter of 2023, new contracts for housing construction/transportation and infrastructure/metallurgical projects were signed at 1,235.8/437.4/29.97 billion yuan respectively, or -0.8%/-17.3%/-10.3% over the same period last year. We believe that the trillion treasury bonds will have a positive impact on infrastructure investment, and the company is expected to benefit from the subsequent implementation of treasury bonds.
As the world's largest metallurgical construction contractor and operation service provider, the “Belt and Road” continues to increase, and overseas orders continue to rise. As the world's largest metallurgical construction contractor and operation service provider, China Metallurgical is one of the central enterprises that have implemented a “going global” strategy relatively early. Currently, overseas institutions set up in the “Belt and Road” countries account for more than 60%, and overseas projects under construction in the “Belt and Road” countries account for nearly 90%.
The company continues to focus on steel and metallurgy production capacity cooperation and major infrastructure project construction to accelerate the scale growth of the company's overseas business. On October 17, the “Belt and Road” Entrepreneurs Conference was held in Beijing. At the conference, China Metallurgical Group's Ruimu Project Team in Papua New Guinea signed a framework agreement on the supply of nickel and cobalt ore with Singapore Integrated Battery Metals Co., Ltd. In the first three quarters of 2023, the company signed new overseas contracts worth RMB 32.82 billion, an increase of 32.6% over the same period last year, while overseas orders remained high.
Profit forecasting
We forecast that the company's revenue for 2023-2025 will be 6843.24, 7765.23, and 879.729 billion yuan, EPS of 0.60, 0.71, and 0.83 yuan respectively, and the current stock price corresponding to PE is 5.4, 4.5, and 3.9 times, respectively. Considering that the company is a leading metallurgical construction enterprise, the Belt and Road Initiative continues to open up room for growth, so it is expected that valuation will increase. Furthermore, although the profit margin level declined in 2023Q3, subsequent revenue and profit are expected to benefit from the issuance of trillion treasury bonds, thus maintaining a “buy” investment rating.
Risk warning
1) Infrastructure investment growth is slowing; 2) the company's performance falls short of expectations; 3) overseas orders are uncertain; 4) resource development business falls short of expectations.