Introduction to this report:

Net profit to mother fell by 2.2% in 2023, with net profit to mother falling 15.6% in the Q4 single quarter. Net operating cash flow decreased by 63.6% in 2023, and new orders increased by 2%, of which Q4 new orders increased 8%. The proposed dividend corresponds to a dividend rate of 4.6%.

Key points of investment:

Maintain an increase in holdings. Affected by the decline in the total number of tenders for investment projects such as PPP, the forecast for 2024-2025 EPS 2.02/2.12 (originally 2.27/2.44) yuan will increase by 5%/5%, and the forecast for 2026 will increase by 5% to 2.23 yuan.

The valuation system for market-related sectors declined, and the target price was lowered to 13 yuan, corresponding to 6 times PE in 2024.

Net profit due to mother fell 2.2% in 2023, lower than expected, and fell 15.6% in Q4 in a single quarter. (1) In 2023, revenue of 1.14 trillion yuan increased by 3.8% (Q1-Q4 increased 3.4/-3.1/2.9/ 11.3%). By business, 987.3 billion yuan increased 2.3%, real estate of 83.3 billion yuan increased by 33.8%, and logistics and other 95.9 billion yuan increased 0.4%. Net profit attributable to mother increased by -2.2% (Q1-Q4 increased 5.1/-1.6/9.3/ -15.6%), while net profit after deducting non-return to mother of 24.6 billion yuan increased 1.9%.

(2) 2023 gross profit margin 10.40% (+0.31pct), expense ratio 5.47% (+0.26pct), net return to mother rate 2.29% (-0.14pct), weighted ROE 9.80% (-1.25pct), balance ratio 74.92% (+0.25pct).

Operating cash inflows in 2023 were lower year over year, and accounts receivable and impairment increased. (1) Net operating cash flow of $20.4 billion in 2023 ($56.1 billion in '22), and Q1-Q4 was -392/199/ -238/63.6 billion ($411/215/184/57.3 billion yuan in '22). The payout ratio was 101% in 2023 (105% in '22), and the payout ratio was 101% (101% in '22). (2) Total operating and investment cash flow - 35.5 billion yuan (500 million yuan in '22).

(3) Accounts receivable of $155.8 billion increased by 10.3%, and impairment losses totaled $9.9 billion ($7.9 billion in '22).

New orders in 2023 increased by 2%, and the proposed dividend ratio increased dramatically. (1) New signings of 3.3 trillion dollars increased by 2% in 2023 (15% increase in the same period in '22), of which 252.8 billion new overseas signings increased by -17%, accounting for 8%. New orders in Q1-Q4 increased 16/-5/-17/ 8% in a single quarter. (2) The proposed dividend of 4.75 billion yuan corresponds to a dividend rate of 4.6%, accounting for 20.18% of the distributable profit attributable to common shareholders of listed companies in the consolidated statements for the year (15.91% as reported in 2022). (3) China Railway Construction 2024 PE 4.3 times historical quartile 21%, PB 0.47 times historical quartile 5%.

Risk warning: macroeconomic policies have been tightened beyond expectations, infrastructure investment has fallen short of expectations, etc.