The increase in non-performance surpassed expectations by 58%, and growth accelerated markedly in Q4. In 2023, the company achieved operating income of 758.7 billion yuan, an increase of 5.1% (after adjustment, same below); net profit after deduction of 23.6%; net profit after deducting non-return to mother was 21.65 billion yuan, a year-on-year increase of 58%. The growth rate exceeded expectations and significantly higher than the earnings due to non-current asset disposal losses of 4.17 billion yuan generated by businesses including REITs in the same period last year. On a quarterly basis, Q1/Q2/Q3/Q4 revenue was +3%/-1%/+2%/+18%, respectively; single-quarter net profit was +10%/-3%/+2%/+130%, respectively. The Q4 results showed significant growth, mainly due to: 1) a sharp increase in gross margin of 3 pcts in a single quarter; 2) the undercalculation of single-quarter impairment amounts to about 800 million. By business, infrastructure construction/infrastructure design/dredging business/other businesses achieved revenue of 6659/473/53.4/19.3 billion yuan respectively, or +5%/+6% compared to the same period last year. Looking at the subregions, domestic/overseas respectively achieved revenue of 642.5/116.2 billion yuan, an increase of 3%/18%. The growth rate of overseas business was impressive.
The improvement in gross margin and the decline in the impairment loss ratio contributed to a significant increase in net interest rates. The company's main gross profit margin in 2023 was 12.54%, up 0.9 pct from the same period last year, mainly due to improvements in the overseas business environment and an increase in the contribution of domestic cash projects with high gross margins, as well as improvements in project management efficiency. The cost rate for the period was 6.26%, an increase of 0.18 pct over the previous year. Among them, the sales/management/ R&D/finance expenses ratio changed +0.06/-0.24/+0.35/+0.02pct respectively, and the management expense ratio decreased a lot, mainly due to the company's continued strengthening of cost control.
Asset (including credit) impairment losses were underestimated by approximately $1.5 billion. Investment income decreased by 2.2 billion dollars year-on-year, mainly due to revenue from issuance of REITs in the same period last year. Net profit margin was 3.14%, up 0.5pct year over year.
Investment project structure optimization and cash flow improvement. The company's annual ROE was 8.2%, up 1.1 pct year on year. According to DuPont's breakdown, net interest rate to mother, asset turnover ratio, and equity multipliers were 3.14%, 0.47 times, and 5.47 times, respectively, +0.5pct, -0.02 times, and +0.12 times, respectively. The increase in ROE was mainly driven by an increase in net interest rate. In terms of cash flow, the company's net operating cash flow inflow for the year was 12.07 billion yuan, an increase of 10.9 billion yuan over the same period last year, improving operating cash flow; the net investment cash flow for the whole year was 55.9 billion yuan, an increase of 9 billion yuan over the previous year. The sum of net investment and operating cash flow was $43.8 billion, which narrowed slightly compared to the previous year. In recent years, the company has continued to control the total number of investment projects, optimize the investment structure, and lean towards short- and medium-term projects. In 2023, the contract amount from infrastructure investment projects was 208.6 billion yuan, a year-on-year decrease of 3 billion yuan. Of these, long-term BOT and government payment projects accounted for about 40%, a year-on-year decrease of 7 pct. The structure continues to be optimized. Future capital expenditure pressure is expected to decline, and cash flow is expected to continue to improve.
Overseas orders are growing at an impressive rate, and there are plenty of orders in hand. The company signed a new contract amount of 175.32 billion yuan in 2023, an increase of 14%. Of these, domestic and overseas contracts were 1433.5/319.7 billion yuan respectively, an increase of 8%/48%. Overseas orders grew strongly. By business, the infrastructure business signed a new contract amount of 1558.5 billion yuan, an increase of 14%. Among them, new orders for ports/roads and bridge/railway/urban construction were 845/3490/369/792.9 billion yuan respectively, +10%/-2.5%/-18%/+17% over the same period last year. Infrastructure design/dredging/other businesses signed a new contract amount of 560/1192/19.6 billion yuan respectively, an increase of 2%/12%/44% over the same period. As of the end of 2023, the company's outstanding contract amount was 345.7 billion yuan, 4.5 times the 2023 revenue, and there were plenty of orders in hand.
Investment advice: We expect the company's net profit to be 256/273/28.9 billion yuan, respectively, up 7.6%/6.4%/6.2%, EPS 1.57/1.67/1.78 yuan, the current stock price corresponding to PE is 5.2/4.9/4.6 times, and the latest PB-LF is 0.52 times, maintaining the “buy” rating.
Risk warning: Infrastructure investment falls short of expectations, risk of overseas business operations, risk of impairment of accounts receivable.