We lower the TP to HK$8.50 but reiterate "Buy" rating. We lower the EPS forecasts for China Railway Construction (CRC, the "Company") in 2024/ 2025 by 15.6%/ 21.8% to RMB2.021/ RMB2.122, respectively, and initiate the EPS forecast for 2026 at RMB2.232. We lower the TP to HK$8.50, equivalent to 4.7/ 4.3x/ 4.1x 2024/ 2025/ 2026 EV/EBITDA.
2023 shareholders' net profit decreased 2.2% YoY to RMB26.1 billion, and results were below expectation. 1) Total revenue in 2023 was RMB1.14 trillion, up 3.8% YoY, of which construction operation was RMB987.3 billion, up 2.3% YoY, and real estate development was RMB83.3 billion, up 33.8% YoY, logistics and others was RMB95.9 billion, up 0.4% YoY. 2) Shareholders' net profit was RMB26.1 billion, down 2.2% YoY, shareholders' net profit excluding non-recurring G/L was RMB24.6 billion, up 1.9% YoY. 3) In 2023, the gross margin was 10.40% (+0.31 ppt), the expenses ratio was 5.47% (+0.26 ppt), the net profit margin was 2.29% (-0.14 ppt), the weighted ROE was 9.80% (-1.25 ppt), and total debt ratio was 74.92% (+0.25 ppt).
Net operating cash flow decreased YoY, while accounts receivable and impairment losses increased YoY in 2023. 1) Net operating cash flow in 2023 was RMB20.4 billion (2022: RMB56.1 billion), Q1-Q4 were -RMB39.2 billion/ +RMB19.9 billion/ -RMB23.8 billion/ +RMB63.6 billion, respectively (-RMB41.1 billion/ +RMB21.5 billion/ +RMB18.4 billion/ +RMB57.3 billion for Q1-Q4 in 2022). 2) Net operating cash flow and investing cash flow combined was -RMB35.5 billion (2022: +RMB0.5 billion). 3) Accounts receivable increased 10.3% YoY to RMB155.8 billion, and total impairment losses increased 25.3% to RMB9.9 billion.
New contracts signed increased 1.5% YoY to RMB3.3 trillion. 1) By industry types, construction operation new contracts signed increased 8.8% YoY to RMB2.0 trillion, environmental protection new contracts signed increased 34.2% YoY to RMB255.9 billion. By regions, domestic new contracts signed increased 3.5% YoY to RMB3.0 trillion (accounting for 92.3% of total new contracts), overseas new contracts signed decreased 17.4% YoY to RMB252.8 billion (accounting for 7.7% of total new contracts). By quarters, growth in new contracts signed from Q1 to Q4 in 2023 were +16%/ -5%/ -17%/ +8%. 2) The Company proposed to distribute a dividend of RMB4.75 billion for 2023, or RMB0.35 per share (2022: RMB0.28 per share), accounting for 20.18% of the distributable profits attributable to shareholders (2022: 15.91%).
Risks: 1) Government infrastructure spending may be lower than expected;2) overseas project risks.