Net profit attributable to mother was +3.8%/+2.2% YoY, maintaining the A/H “Purchase” rating, achieving revenue of 1.14 trillion yuan, +3.8% YoY, and achieving net profit attributable to mother/ net profit of 261/24.6 billion yuan, -2.2%/+2.0% YoY. Net profit attributable to mother was lower than our expectations ($28.7 billion), mainly due to increased financial expenses and impairment. 23Q4 achieved revenue/net profit attributable to mothers/net profit deducted from non-mother of 3315/67,61 billion yuan, +11.3%/-15.6%/-1.0% year-on-year. Considering the slowdown in the growth rate of traditional infrastructure investment, we adjusted the company's net profit forecast for 2024-2026 to 274/287/29.7 billion yuan (312/33.8 billion yuan 24-25 years ago). Comparable to A Shares/H Shares, the company's 24-year Wind agreed to have an average of 5/3xPE. Considering that the company's new management focused on improving quality and efficiency, the quality of operation is expected to improve. The approval was given to give A/H shares 5/3xPE in 24 years, and adjusted the target price for A/H shares to HK$10.09/6.68 (previous value: HK$9.52/HK$5.77), all maintaining a “buy” rating.
Comprehensive gross margin improved year-on-year, and overseas revenue grew rapidly
The company's overall gross profit margin in '23 was 10.4%, +0.31pct year on year, 13.4% gross profit margin in 23Q4, and -0.3/+3.7pct. By business, engineering contracting/material logistics/real estate/planning and design consulting/industrial manufacturing revenue of 9873/959/833/188/24 billion, +2.3%/+2.3%/+2.3%/gross profit margin 8.9%/7.9%/12.2%/43.3%/22.1%, +0.3/-0.5/-1.8/+7.4/-0.5pct; total contributed profit of 266/24/30/39/2.6 billion, and the total contribution to engineering contract profit increased further. Profit contributions have all declined. By region, domestic and overseas revenue was 10777/60.3 billion, +3.4%/+11.5% YoY, gross profit margin 10.6%/6.9%, +0.4/-0.9pct YoY.
The expense ratio increased slightly during the period, and impairment accruals increased. Under a high base, net cash flow decreased by 5.5% year-on-year, and the expense ratio for the 23-year period was 5.5%, +0.26pct year over year. Among them, the sales/management/R&D/finance expenses ratio was +0.04/+0.07/+0.07/+0.08pct year-on-year. In '23, impairment increased by 2 billion yuan, accounting for +0.15 pct to 0.87% year on year, profit and loss on disposal of illiquid assets decreased by 1 billion yuan year on year, net interest rate to mother -0.14 pct to 2.29% year on year, and net interest rate after deducting non-return net interest rate decreased slightly by 0.04 pct to 2.16% year on year. 23Q4 net interest rate/ net interest rate without return to mother 2.0%/1.9%, -0.6/-0.2pct year on year, -0.2/-0.2pct month-on-month, with an expense ratio of +0.01pct year over year for the period. Net cash flow from operating activities in '23 was 20.4 billion yuan, with a year-on-year decrease of inflows of 35.7 billion yuan, mainly due to high cash inflows supported by steady growth financial policies in '22, which had a high base. The payment/payout ratio in '23 was 101.5%/101.2%, and -3.1/+0.2pct year-on-year.
The 24-year business goal is to weaken the scale and focus on improving quality and efficiency
The company's 2024 business plan has changed compared to 2023:1) The amount of new contracts signed was 301.1 billion yuan, -9.3% year over year, increasing the share of new business and strategic emerging industry contracts; 2) revenue of 1104 billion yuan, -4.9% year on year; 3) Costs and taxes of 105.2.1 billion yuan, -5.3% year over year. We believe that the company's new management will focus more on risk prevention and high-quality development, which is expected to drive continuous improvement in the quality and efficiency of the company's operations in the future.
Risk warning: The growth rate of infrastructure investment is slowing down, real estate recovery is lower than expected, and the increase in gross margin falls short of expectations.