Matters:
China Railway Construction announced its 2023 annual report: in 2023, the company achieved revenue of 1,1379.9 billion yuan, +3.8% year on year; net profit to mother was 26.10 billion yuan, -2.2% year over year.
Commentary:
There was a slight increase in revenue and a slight decline in performance, mainly due to credit impairment losses. The company achieved revenue of 1,1379.9 billion yuan in 2023, +3.8% year on year; net profit to mother of 26.10 billion yuan, -2.2% year on year; the decline in the company's revenue growth performance was mainly due to: 1) the increase in engineering contracting and real estate business during the reporting period, but the revenue growth rate slowed, and the growth rate was -3.7 pct year over year; 2) the total increase in credit and asset impairment losses compared to 2022. On a quarterly basis, Q1-Q4 revenue was +3.4%, -3.1%, +2.9%, and +11.3% year-on-year, while net profit to mother was +5.1%, -1.4%, +9.4%, and -15.4% year-on-year, respectively. By business, engineering contracting revenue was 987.32 billion yuan, +2.3% year over year; planning and design revenue was 18.75 billion yuan, -7.6% year over year; industrial manufacturing revenue was 24.00 billion yuan, -3.0% year over year; real estate revenue was 83.27 billion yuan, +33.8% year over year; material logistics revenue was 95.87 billion yuan, +0.4% year over year. Revenue growth was mainly contributed by engineering contracting and real estate businesses.
Profitability remained steady and cash inflows declined. In 2023, the company's gross profit margin was 10.4%, +0.3 pct year on year; net profit margin was 2.8%, -0.06 pct year on year, and profitability remained steady. By business, the gross margins of engineering contracting, planning and design, industrial manufacturing, real estate, and material logistics businesses were 8.9%, 43.3%, 22.1%, 12.2%, and 7.9%, respectively, +0.3, +7.4, -0.5, -1.8, and +0.5pct, respectively. Net operating cash flow in 2023 was 20.41 billion yuan, a year-on-year decrease of 35.72 billion yuan. The company's rate for the period was 5.5%, +0.3 pct year on year, including management rate, R&D rate, sales rate, and finance rate +0.07pct, +0.04pct, and +0.08pct, respectively; revenue ratio 101.5%, -3.1 pct year on year; balance ratio 74.9%, +0.3 pct year on year.
Order growth has slowed, and water business orders continue to explode. In 2023, the company signed a new contract amount of 3,293.87 billion yuan, +1.5% year-on-year, and a growth rate of -13.6 pct compared with last year. 1) Infrastructure construction projects: In 2023, the company signed a new contract amount of 2,853.48 billion yuan for this business, +1.7% year-on-year, and the growth rate was -14.5pct compared to last year. By project type, railway/highway/urban rail/housing construction/municipal, mine/water/airport/electricity/other projects were newly signed, 3,232.4/3,277.1/1,334.7/11,640.4/3,328.6/1,305.8/1,552.8/68.3/1,314.6/148.0.2 billion yuan, respectively, -34.1%/-21.5%/+4.0%/+23.6%/+21.2%/+87.3%/+12.9%/+12.9% /+9.0 %/ +57.8%. The large year-on-year decline in the company's railway engineering business was mainly due to the year-on-year decrease in total tenders for railway projects in 2023. The water conservancy and water transport business continued to explode year-on-year, mainly due to the company closely following the national water network construction plan and continuing to strengthen related project undertakings; 2) Non-infrastructure projects:
The new contract amounts for planning and design consulting/industrial manufacturing/real estate development/material logistics/industrial finance/emerging industry business were RMB 296.8/417.5/1,236.9/2,164.3/108.8/17.96 billion yuan, respectively, up 0.8%/+11.9%/-5.8%/-3.8%/-4.6%/+197.0%, respectively.
Investment advice: The company has sufficient orders, and the growth rate of new orders has declined slightly. We predict that the company's EPS will reach 2.06, 2.18, and 2.29 yuan/share in 2024-2026 (pre-2024-2025 values are 2.45 and 2.74 yuan), and the corresponding PE is 4x/4x, respectively. According to the historical valuation method, we adjusted the target price to 10.5 yuan/share, corresponding to 5.1xPE in 2024, maintaining a “strong” rating.
Risk warning: The progress of the project fell short of expectations, and the infrastructure investment situation fell short of expectations.