Incidents:
Tieke Railway released its annual report for the year 23. The company achieved revenue/net profit of 16.4/2.9/290 million yuan, +22.2%/+22.7%/+23.1% year-on-year; of these, 23Q4 achieved operating income/net profit attributable to mother/net profit 2.4/-0.07 billion yuan, -27.8%/-115.9%/-116.2% year-on-year.
Comment:
There were losses in the fourth quarter due to fluctuations in supply demand, and differences in order fulfillment diverged the business growth rate: due to factors such as centralized supply of winning routes, the company's business performance had certain quarterly fluctuations. Demand for the supply of the winning project in the fourth quarter decreased. Coupled with the year-on-year increase in R&D expenses, the company lost its performance in the fourth quarter. Looking at various businesses, the increase in fulfillment orders for railway bridge bearings and rail component processing services has led to a significant increase in revenue growth in these two businesses. The decrease in prestressed steel wire and anchor plate fulfillment orders has led to a decline in the sector's revenue growth rate. In '23, the company achieved revenue of 12.5/1.6/0.57/0.9/0.7 billion yuan for rail fasteners/engineering materials/prestressed steel wire and anchor plates/railway bridge supports/rail parts processing services, respectively, +26.3%/+12.4%/-42.5%/+46.8%/+118.3% over the same period last year.
Track fastener inventory was eliminated at an accelerated pace, and the Tianjin high-speed rail equipment and accessories project achieved mass production: the company signed a new contract of 1.63 billion yuan, -8.2% year on year. As of the end of 2023, the company's unexecuted contract amount was 1.98 billion yuan, -20.4%; the company's rail fastener production/sales/inventory in 23 was 374.5/450.8/1.389 million sets, -8.4%/+18.1%/-35.5%. The transfer of production capacity reduced annual output, increased rail fastener fulfillment orders, and accelerated inventory removal ; The elastic strip workshop and bolt workshop of the “High Speed Rail Equipment and Accessories Project with an annual output of 18 million pieces” in Tianjin of the Company were put into operation in June 2023. As of December 2023, mass production has been achieved, and production capacity has been expanded.
The drop in raw material prices led to a significant increase in gross margin, and the acceleration of repayments led to a marked improvement in cash flow: in '23, the company's gross margin/net margin was 42.1%/22.7%, +5.9/+2.0pcts; the cost ratio for the period rose slightly, with sales/management/financial/R&D expenses ratios of 3.3%/7.0%/-1.2%/6.5%, respectively, -0.4/+0.2/+0.8pct. The investment rate of the Beijing R&D center construction project increased significantly.
The gross margin of processing services for rail fasteners/engineering materials/prestressed steel wire and anchor plates/railway bridge supports/rail components was 45.6%/25.9%/33.5%/12.8%/63.7%, respectively, +5.6/+6.1/+7.7/-4.0/-2.0pcts.
In '23, the company achieved a net operating cash flow of 469 million yuan, +187.7% year-on-year. Revenue growth and accelerated cash repayment from sales led to a significant improvement in the company's cash flow.
A new round of equipment renewal and high-speed rail travel brings business growth: On March 13, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which proposes to promote equipment renewal and transformation in key industries, including machinery, aviation and shipping; accelerate equipment updates in construction and municipal infrastructure; and support the upgrading of transportation equipment and old agricultural machinery. The actual service life of the high-speed rail fastener system may be about 10-15 years. As the operating period of existing high-speed rail lines increases year by year and the advancement of a new round of large-scale equipment updates, the company is expected to fully benefit as a leading enterprise in the industry. At the same time, in the context of high-speed rail going overseas, the company relies on the China Railway Group to actively explore overseas markets, and overseas growth can also be expected.
Profit forecasting, valuation and ratings: The company's leading edge in the industry is remarkable, and its performance is growing rapidly, but considering that the company's performance growth rate declined in 23, and there is some uncertainty about equipment updates and overseas expansion, we lowered the company's net profit to 40/60 billion yuan for 24-25 years (down 16.8% and 1.6%, respectively), and added a forecast that the company's net profit to the mother in '26 was 750 million yuan, maintaining a “buy” rating.
Risk warning: Domestic high-speed rail construction falls short of expectations, high-speed rail stock track maintenance updates fall short of expectations, and release of overseas demand falls short of expectations.