CRCC reported 2023 results, with revenue up by 3.8% YoY and net profit down by 2% YoY respectively. Despite in-line revenue, net profit was slightly lower than our and consensus estimates, mainly due to higher-than-expected finance cost and impairment loss on financial assets. The amount of newly signed contracts reached RMB3,293,870bn in 2023, representing only 1.5% YoY growth due to high base in 2022 and tight local government budgets. However, we reckon CRCC might benefit from the ongoing special refinancing bond program in 2024 in terms of new orders and cash collection process. We roll forward the unchanged 4x 24P/E to derive the new TP HK$9.09. With 91% upside, maintain BUY rating.
Key Factors for Rating
CRCC reported in-line revenue but slightly disappointing net profit in 2023. Gross profit maintain its growth momentum to expand by 0.3ppt and reach 10%. The 30.3% YoY growth in finance cost and 25.2% YoY growth in overall impairment loss all outpaced the 3.8% YoY revenue growth, resulting in a 2% YoY decrease in net profit. The increasing impairment mainly came from provision for financial assets such as receivables. Operating cash flow was RMB20,412m, down by 63.64% YoY compared to the high base in 2022.
In terms of sales breakdown, construction operation remains as CRCC's biggest revenue contributor, of which revenue increased by 2.3% YoY and accounted for 88% of overall revenue in 2023. Real estate segment delivered decent growth of 33.8% YoY, which help to offset declines in other segments, such as planning and design segment with 7.6% YoY decrease. In terms of new orders, the sluggish 1.5% YoY growth was mainly dragged by the 34.06% YoY decrease in railway projects. As stated by management team, CRCC now focuses more on project quality rather than quantity when selecting new projects.
Operating cash flow decreased by 63.6% YoY in 2023, but still remains positive. The declining operating cash flow and increasing provisions for receivables indicates the cash collection process for some infrastructure projects still pending further improvements. We reckon the special refinancing bond program will help to bring more liquidity towards infrastructure investment.
Key Risks for Rating
Slower-than-expected cash collection process from local governments due to tight budget.
Valuation
We roll over and apply the same target multiple, 4x 24E P/E to derive the new TP of HK$9.09. With 91% upside, retain BUY rating.