Key points of investment
Incident: The company disclosed its 2023 annual report, achieving operating income/net profit attributable to mother/net profit of 7587/238/21.7 billion yuan, compared with +5.1%/+23.6%/+58.2% year-on-year; among these, operating income/net profit to mother/net profit after deducted net profit of 2110/76/6.4 billion yuan in the fourth quarter, respectively, +18.3%/+130.1%/+402.5% year-on-year, respectively.
Overseas business continues to gain strength, and operating quality has improved: (1) By business, the company's infrastructure/infrastructure design/dredging business achieved revenue of 6659/473/53.4 billion yuan in 2023, +5.2%/-6.0%/+4.9%, respectively, gross margin of 11.6%/18.5%/13.1%, respectively, +1.0/+2.0/ -0.2pct year on year; the company's comprehensive gross margin was 12.6%, +0.9pct year on year; the increase in infrastructure construction business revenue and gross margin increase, mainly due to overseas business and domestic sales The contribution of cash exchange projects increased, the level of project management improved, and the increase in gross margin at the same time as revenue from the infrastructure design business decreased, mainly due to business restructuring. In 2023, the company's design business was successfully restructured and listed, specialized integration was initially completed, positioning to expand the high-end market, and the business transformation and upgrading was ongoing. (2) By region, the company achieved domestic and overseas revenue of 642.5/116.2 billion yuan respectively in 2023, +3.1%/+17.8% year on year, gross margin of 12.9%/11.1%, respectively, and +0.9/+1.0pct year on year, respectively. The company actively promotes international upgrading, high-quality joint construction of the Belt and Road Initiative, etc. In 2023, overseas business accounted for +1pct to 15% of total revenue compared to the same period last year.
Expense control continued to be strengthened, and net margin increased significantly due to improved gross margin and reduced impairment losses: (1) In 2023, the company's sales/management/R&D/finance expense ratios were 0.3%/2.5%/3.6%/-0.1%, respectively, and remained basically the same as +0.1/-0.2/+0.4, respectively. The company's expenses are properly controlled, and the management cost rate has been reduced. At the same time, investment in R&D has been increased, and various technical research projects have achieved effective results and phased results. (2) The decrease in the company's investment income was mainly due to the base effect of one-time income from the issuance of REITs last year. Credit impairment losses fell 25.3% year on year to 6.89 billion yuan, mainly due to a decrease in accounts receivable and long-term receivables losses; (3) The company achieved net profit of 23.8 billion yuan, +24.6% year over year, and net interest rate to mother increased 0.5 pct to 3.1% year over year.
Operating cash flow increased dramatically, and long-term investment projects declined significantly. (1) The net cash flow from the company's operating activities in 2023 was 12.07 billion yuan (440 million yuan in 2022), and the payout ratio was -0.2/-3.2pct, respectively. The company strengthened cash flow management, increased asset market vitality, and continued to optimize project payments; the company's net operating and investment cash flow outflow was 43.8 billion yuan, a decrease of 2.4 billion yuan over the previous year. The company has strictly controlled the total amount of investment projects in recent years, and the long-term structure is skewed towards short- and medium-term cycles. (2) The company's return on net assets in 2023 was 8.2%, +1.1 pct year on year, and the balance ratio was 72.7%, +0.9 pct year on year.
The company has sufficient orders in hand, and the growth rate of overseas orders is strong. The amount of new contracts signed by the company in 2023 was 175.3.2 billion yuan, or 103.5% of the annual target, of which the amount of new overseas contracts was +47.5% to 319.7 billion yuan, accounting for +4pct to 18% of the total new contract amount. Overseas orders grew strongly, and achieved a new contract amount of US$38.761 billion in the “Belt and Road” co-building countries; as of the end of 2023, the total number of orders in hand was 34507 billion yuan, with sufficient orders in hand.
Profit forecast and investment rating: The company is a leading large-scale infrastructure integrated service provider in China, and as the main force for construction state-owned enterprises to “go global”, it will fully benefit from the “Belt and Road” development opportunities. The company paid close attention to the “one profit and five rate” assessment requirements of the State Assets Administration Commission, and the quality of operations continued to improve. We raised the company's net profit forecast for 24-25 to 258/27.6 billion yuan (previous value was 236/25.9 billion yuan), and the net profit forecast for 26 years was 29.4 billion yuan. The closing price on March 29 corresponding to PE for 24-26 was 5.4/5.1/4.8 times, respectively, maintaining the “buy” rating.
Risk warning: The “Belt and Road” boosting overseas business fell short of expectations; the growth rate of infrastructure investment fell short of expectations; state-owned enterprise reforms fell short of expectations.