Operating income increased 10.2%, and net profit to mother increased 6.5%. In 2023, the company achieved revenue of 2265.5 billion yuan, +10.2% year-on-year, and achieved net profit of 54.26 billion yuan to mother, +6.5% year-on-year. 2023Q4 achieved revenue of 594.3 billion yuan, +14.5% year-on-year, and achieved net profit of 10.61 billion yuan to mother, +43.1% year-on-year.
The main reason for the rapid increase in the company's revenue and performance in the fourth quarter was: gross margin declined in Q4 last year, leading to a lower base. Net profit from Q4 2023 was still 22% lower than in 2021, mainly due to a slight decline in gross margin and an increase in land value-added tax and interest expenses.
New contracts have maintained double-digit growth, and new overseas signings have picked up significantly. In 2023, the company's construction industry signed a new contract amount of 3872.7 billion yuan, +10.6% year-on-year, including 2689.4 billion yuan for housing construction, +8.8% year on year, 1168.5 billion yuan for infrastructure construction, +15.1% year on year; new overseas contract amount was 175.5 billion yuan, +15.4% year over year, rising back to the level of 2019 before the pandemic. In 2024, the Q1 company signed a new contract amount of 1110.7 billion yuan, of which new housing construction/infrastructure signing was +11.4%/+23.2%, and the amount of new overseas contracts signed was 22.4 billion yuan, +38.4% year over year. The amount of new contracts signed maintained a rapid growth trend.
The housing construction business bucked the trend, and its market share increased dramatically. In 2023, the country's new housing construction area was 954 million square meters, -20.9% year-on-year, and China's new housing construction area was 377 million square meters, +1.5% year-on-year. Measured by the new construction area, the company's market share increased dramatically from 15.3% in 2020 to 39.6% in 2023. The company's housing construction orders rely on the real estate industry to a limited extent. In 2023, the company signed a new residential contract amount of 661.9 billion yuan (excluding guaranteed housing), accounting for only 24.6% of the new housing construction contract amount. The company has a relatively strong brand advantage and relatively lower financing costs, and its competitiveness continues to strengthen during the market adjustment phase.
Real estate sales have been restored, and gross real estate margins have stabilized marginally. In 2023, the company achieved a contract sales area of 18.58 million square meters, achieving contract sales of 451.4 billion yuan, or +12.4% year over year. Among them, the sales volume of the company's two major brands, Zhonghai Properties/China Construction Real Estate, was 2670/184.4 billion yuan respectively, accounting for 59.1%/40.9% respectively, and China Construction Real Estate's share of sales continued to increase. In 2023, the company's real estate business achieved revenue of 308.8 billion yuan, a year-on-year increase of +9.5%, gross profit margin of 18.2%, and a year-on-year decline of 0.8 pct. Against the backdrop of continuous adjustments in the real estate industry, the real estate gross margin stabilized.
Accounts receivable turnover is slowing down, and the cost of disposal of accounts receivable continues to decrease. At the end of 2023, the company's accounts receivable were 303 billion yuan, up 22.0% from the end of the previous year. Of these, accounts receivable within one year accounted for 66.7%, up 0.7 pct from the end of the previous year. The size of the company's accounts receivable grew rapidly, and the receivables turnover rate fell from 8.9 times in 2022 to 8.2 times in 2023. In 2023, the company's accounts receivable termination confirmation amount (including factoring and asset securitization) was $52.6 billion, a decrease of 14.1% from the previous year, and the discount rate (disposal cost rate) was 3.18%, down 0.33 pct from the previous year.
The scale of impairment remains high, but its share of revenue and profit is relatively low. In 2023, the company's accrued asset and credit impairment losses totaled 14.30 billion yuan, +5.6% year-on-year, and remained at a high level of more than 12 billion yuan for three consecutive years. The ratio of impairment losses to operating income and net profit due to mother was 0.63% and 26.4%, respectively. They are at a low level in the industry and have a relatively small impact on profits.
Operating cash flow has improved, and the current balance of receipts and payments has been reduced compared to inversion. Net cash flow from the company's operating activities in 2023 was $11.03 billion, an increase of 188% over the previous year. Net operating cash flow for the fourth quarter was 27.38 billion yuan, or -51.4% over the same period, reflecting that the year-end repayment pressure was still strong. In 2023, the company's revenue ratio was 101.1%, and the payout ratio was 102.0%. Compared with the previous year's share of -2.44%/-3.16%, it remained above 100%. The difference in payout ratio was -0.89pct, and the inversion margin was 0.73 pct narrower than the previous year.
Risk warning: macroeconomic downside risk, risk of changes in real estate and infrastructure-related policies, risk of continuing decline in the real estate industry, risk of impairment of accounts receivable and contract assets.
Investment advice: Lower profit forecasts and maintain a “buy” rating. The company's construction business bucked the trend, the real estate business stabilized marginally, and its leading position in the industry continued to be consolidated. Since it remains to be observed whether the boom in the real estate industry can stabilize, the conflict between infrastructure investment and local debt still needs to be resolved, and the company still has a certain amount of potential impairment risk. It is predicted that the company's net profit to mother will be lowered slightly from 606/63.7 billion yuan to 561/60.5 billion yuan in 24-25 years, and earnings per share will be lowered from 1.44/1.52 to 1.34/1.44 yuan, corresponding to the current stock price PE of 4.0/3.7X, maintaining a “buy” rating.