China Express released its 2023 annual report: In 2023, the company achieved operating income of 37.02 billion yuan (-7.96% year over year); net profit to mother of 3.477 billion yuan (-4.30% year over year); net profit after deducting non-return to mother of 3.266 billion yuan (-4.41% year over year). Among them, rail transit control system business revenue was 29.262 billion yuan, accounting for 78.9% of total revenue.
Key points of investment
Implementing policies to accelerate the recovery of the rail transit industry
During the “14th Five-Year Plan” period, China added about 23,700 kilometers of railway operating mileage, and the total investment in the railway market is expected to reach 3.5 trillion yuan. At the same time, China will add 3,000 kilometers of urban railway operating mileage, and the total investment in railway special line construction is expected to reach 800 billion yuan. Domestic railway infrastructure construction will maintain a high level of investment, and the signal control system equipment market is expected to be around 10 billion yuan per year. Moreover, as China's railway operating mileage continues to grow, there is a clear trend of railway investment shifting from construction construction to renovation, operation and maintenance. Furthermore, in 2024, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, which clearly states that by 2027, the scale of investment in equipment in the fields of industry, agriculture, construction, transportation, medical care, etc. will increase by more than 25% compared to 2023; implement equipment renewal actions to promote equipment upgrading in key industries and support the renewal of transportation equipment and old agricultural machinery. As a core enterprise to ensure the safe operation of rail transit, the company coincides with the rail transit equipment replacement cycle and will fully benefit from this equipment renewal action plan.
There are plenty of orders in hand, building a moat for future performance
In 2023, the company further strengthened its leading position. The total number of new contracts signed throughout the year was 73.121 billion yuan, an increase of 0.15% over the same period in 2022, including: the railway sector was 25.112 billion yuan, up 5.01% year on year; the urban rail sector was 13.18 billion yuan, up 3.91% year on year; the overseas sector was 3.74 billion yuan, up 45.18% year on year; by the end of 2023, the company had orders of 168.831 billion yuan. The company's order conversion cycle is generally 2-3 years. It is expected that new orders will mainly be reflected in the 2024-2026 business results to ensure the company's revenue growth in the next two years.
Accounts receivable have increased, and the company will strengthen controls
By the end of 2023, the company's accounts receivable were 608 million yuan. Long-term accounts receivable increased by 22.62% compared to the end of 2022, accounting for an increase of 1.03 pct in the company's total assets.
The company's accounts receivable are mainly domestic customers. Repayments for some municipal projects are slightly slower than in previous years due to external factors and problems with local owners' funds. The company will make corresponding impairment charges on accounts receivable, and at the same time take measures to strengthen source control, analyze and comprehensively consider customer integrity, repayment periods, financial conditions, etc.
Furthermore, the company will seize favorable opportunities to increase the settlement of accounts receivable, increase assessment requirements for operating cash flow and the effectiveness of “two funds” control, formulate a special reward system for accounts receivable, give full play to the role of performance incentives, and make risks manageable.
Profit forecasting
Considering the negative macroeconomic impact and the company's accounts receivable repayment situation, we slightly lowered the company's revenue and predicted that the company's revenue for 2024-2026 would be 397.73, 432.73, and 46.518 billion yuan, respectively, and EPS of 0.35, 0.38, and 0.40 yuan, respectively. The current stock price corresponds to PE 16, 15, and 14 times, respectively. Currently, the company has plenty of orders, and the order conversion performance is delayed, which may guarantee the company's future revenue growth and maintain a “buy” investment rating.
Risk warning
Overseas business risks brought about by changes in the pattern of international relations; national railway infrastructure investment falls short of anticipated risks; urban rail transit investment falls short of anticipated risks.