Matters:
China Construction released its 2023 annual report: The company achieved operating income of 2,265.53 billion yuan in 2023, +10.2% year on year; net profit to mother was 54.26 billion yuan, +6.5% year over year. New orders of $4.3 trillion were signed throughout the year, +10.8% year-on-year.
Commentary:
Revenue performance increased steadily, dividends were stable, dividend rate 5.1%: the company achieved operating income of 2,265.53 billion yuan in 2023, +10.2%; net profit to mother was 542.6 billion yuan, +6.5% year over year; by business, the company's housing construction/infrastructure/ real estate/survey and design business all grew steadily, achieving revenue of 13,837.4/5,565.6/308.81/11.75 billion yuan, respectively; by region, domestic/overseas revenue It was 21,497.7/1157.6 billion yuan, respectively, +10.0%/+7.2% year-on-year, respectively.
The real estate development and investment business grew against the market. In 2023, real estate development and investment business contract sales were 451.4 billion yuan, +12.4% year over year, and revenue was 308.08 billion yuan, +9.5% year over year. The total cash dividend in 2023 was 11.30 billion yuan, +6.6% year-on-year; the cash dividend ratio was 20.8%, which remained stable. It is proposed to distribute $2.71 for every 10 shares, corresponding to a dividend rate of 5.1% of the closing price on April 19.
New orders increased steadily, and overseas orders grew at a higher rate: in 2023, the company signed 4.32 trillion new orders, +10.8% over the same period last year. Among them, new orders for housing construction, infrastructure construction and investment, and survey and design business were 2,689.4 billion yuan/1,1685 billion yuan/14.8 billion yuan respectively, +8.8%/+9.5%/+8.8% compared with the same period last year. Looking at segments, new contracts were signed in the fields of industrial plants, science, education and health, commercial integration, and municipal engineering, 6,21.8 billion yuan/516.8 billion yuan/282.9 billion yuan, +58.9%/+6.8%/+5.2%/17.0% compared with the same period last year. Energy engineering signed a new order of 269.7 billion yuan, a year-on-year increase of +151.4%. Looking at the subregions, overseas business signed new contracts worth 186 billion yuan, +12.3% over the same period last year. The company aims to sign new contracts of more than 4.5 trillion dollars in 2024, which is expected to be +4.2% year-on-year, and the target revenue is over 2.38 trillion yuan, which is expected to be +5.1% year-on-year.
The gross margin decreased slightly, and the cost ratio and cash flow improved significantly: the company's gross profit margin in 2023 was 9.8%, -0.6% year over year, mainly due to the decline in the gross margin of traditional businesses. By industry, gross margins of housing construction, infrastructure construction and investment, real estate development and investment, and survey and design were 7.3%/9.8%/18.2%/21.3%, respectively, -0.7%/-0.6%/-0.8%/+0.4% compared to the same period last year. By region, domestic and overseas gross margins were 10.1%/5.2%, respectively, -0.7%/+0.1% year-on-year. The company actively reduced costs and increased efficiency. Expenses improved significantly during the period. The cost rate for the 2023 period was 4.7%, -0.6pct year on year. Looking at the breakdown, sales, management, finance, and R&D rates were 0.34%/1.52%/0.82%/2.03%, respectively, +0.02%/-0.13%/-0.14%/-0.39% compared to the same period last year. Net operating cash flow was 11.03 billion yuan, a year-on-year increase of +188.1%, mainly due to marginal improvements in project payments and home purchase payments collected in the current period.
Investment advice: Revenue performance has maintained steady growth, and cash flow has improved markedly: Considering the slight slowdown in the growth rate of the infrastructure industry, we lowered the 2024-25 EPS forecast to 1.42/1.53 yuan/share (original value 1.47/1.61 yuan/share), and forecast 2026 EPS 1.66 yuan/share, corresponding to PE 3.8x/3.5x/3.2x, respectively. The company has plenty of orders in hand, and the quality of operations has improved steadily. Considering that the company's valuation center for the past 10 years was 6xPE. According to the historical valuation method and reference to the current industry's comparable company valuation level, and PE4.5x in 2024, we adjusted the target price to 6.39 yuan/share to maintain the “strong promotion” rating.
Risk warning: The downward pressure on the economy is increasing, infrastructure investment falls short of expectations, and market demand falls short of expectations.