Q4 Performance growth accelerated, and the full-year growth rate was in line with expectations. The company achieved operating income of 126.8 billion yuan in 2023, an increase of 9.5% over the previous year; achieved net profit of 33.5 billion yuan, an increase of 7%; after deducting non-performance of 30.9 billion yuan, an increase of 9%, the steady increase in performance was in line with expectations. On a quarterly basis, Q1/Q2/Q3/Q4 revenue increased by 2%/8%/2%/25% respectively; net profit to mother changed +4%/+11%/-1.5%/+15%, respectively. Q4 revenue and performance growth accelerated significantly. It is expected that the order conversion rate will increase mainly due to the company speeding up the execution of ongoing projects. By business, the infrastructure sector achieved revenue of 108.76 billion yuan, an increase of 11%, of which the railway/highway/municipal sector and others increased 25%/3%/7%; the design/equipment manufacturing/real estate sector, respectively, achieved revenue of 183/274/50.9 billion yuan, -2%/+6%/-5% year-on-year; other businesses achieved revenue of 79.3 billion yuan, an increase of 9%, of which mineral resources/asset operations increased 11%/46%, respectively.
By region, domestic/overseas revenue reached 12012/62.3 billion yuan respectively, an increase of 10%/7% over the same period.
Gross profit margins have rebounded steadily, and investment cash outflows have narrowed. The company's comprehensive gross margin reached 10.01% in 2023, up 0.2 pct year on year. Among them, the gross margin of infrastructure/ design/ equipment/ real estate/ other business changed +0.4/+0.06/+0.7/-2.6/-1pct, respectively, and the profit level of the main construction industry continued to rise. The cost ratio for the period was 5.48%, YoY+0.07pct. Among them, the sales/management/R&D/finance expense ratios were -0.01/flat/-0.03/+0.1 pct, respectively. The increase in financial expense ratio was mainly due to the increase in cost-based interest expenses and exchange rate fluctuations. Asset (including credit) impairment losses increased by 2 billion yuan year-on-year, accounting for YoY+0.12pct of revenue. Investment income also decreased by $1.24 billion. Net profit margin was 2.66%, YOY-0.06pct. The company's net operating cash flow for the year was 38.4 billion yuan, a year-on-year decrease of 5.2 billion yuan; the net investment cash flow outflow was 74.6 billion yuan, a year-on-year decrease of 9.7 billion yuan, mainly due to a decrease in the scale of investment in intangible asset model infrastructure projects such as highways.
In Q4, orders increased by 24% in a single quarter, and orders for housing construction, highways, etc. increased significantly. In 2023, the company signed a new contract amount of 310.6 billion yuan, an increase of 2% (2%/9% increase for domestic/overseas respectively); in Q4, the amount of new contracts signed in a single quarter was 129.84 billion yuan, a year-on-year increase of 24%, a significant increase over the previous year. By business, the annual project construction contract amount was 2251 billion yuan, an increase of 11%. Among them, the housing construction business signed 1147.8 billion yuan, an increase of 38%; railway/highway/municipal rail/urban rail/other businesses signed 3185/2210/2614/164.5/137.7 billion, respectively, or -36%/29%/-6%/40%/8% over the same period last year. Design consulting/equipment manufacturing/characteristic real estate/asset management/resource utilization/financial trade/emerging business order amounts were -0.4%/9%/-7%/-55%/42%/29%/6%, respectively. Looking at the subregions, the amount of new contracts signed for domestic/overseas business was 2,908/1998 billion yuan respectively, an increase of 2%/9% over the same period. By the end of 2023, the company's outstanding contract amount was 5876.4 billion yuan, an increase of 19% over the previous year, 4.7 times the company's 2023 revenue. The contract reserves are abundant, which is expected to support the steady growth of the company's subsequent performance.
Mineral resources contributed 14% to the performance, and the value of the sector needed to be reassessed urgently. The company's current reserves of copper, cobalt, and molybdenum are in the leading position in the industry (740/56/620,000 tons by the end of 2023, respectively), and copper and molybdenum production capacity already ranks among the highest in the country. In 2023, the company's mineral resources sector achieved revenue of 8.4 billion yuan, a year-on-year increase of 11.5%, gross profit margin of 59.7%, and a year-on-year increase of 4 pcts. The company's mineral resources business entity is China Railway Resources, a wholly-owned subsidiary, which achieved operating income of 24.3 billion yuan in the full year of 2023; realized net profit of 4.7 billion yuan to mother, accounting for 14% of total net profit to mother. If mineral resources are applied for as the main business to be cultivated, it is expected that the acquisition of new mines will accelerate development in the future. According to the comparable company Zijin Mining's 2024 PE (15.8X), the market value of the company's resources sector can reach 74.2 billion; the profit of the other engineering sector is 28.8 billion yuan, referring to China Communications Construction's 24-year PE (5.7X) corresponding valuation of 164.1 billion yuan, totaling 238.3 billion yuan, which is 41% higher than the current market value.
Investment advice: We expect the company's net profit to be 375/408/44 billion yuan, respectively, up 12%/9%/8%, EPS of 1.52/1.65/1.78 yuan respectively. The current stock price corresponds to PE 4.5/4.1/3.8 times, and the latest PB-LF is 0.62 times, maintaining a “buy” rating.
Risk warning: Infrastructure investment falls short of expectations, risk of overseas business operations, risk of impairment of accounts receivable, risk of commodity price fluctuations.