Event: The company released its 2023 annual report and 2024 quarterly report. The company achieved operating income of 81 billion yuan in 2008, an increase of 7.0% over the previous year; achieved net profit of 11.9 billion yuan, an increase of 6.6% over the previous year; and realized net profit of 12 billion yuan without return to mother, an increase of 7.4% over the previous year. The company's revenue for the first quarter of '24 was about 18.3 billion yuan, down 7.9% year on year; net profit to mother was about 3.05 billion yuan, down 16.7% year on year; net profit without return to mother was about 3.04 billion yuan, down 16.9% year on year. The company plans to pay a cash dividend of 0.44 yuan/share (tax included), a decrease of 0.04 yuan/share (tax included) from the same period last year. The cash dividend ratio is about 58%, a decrease of 7 pcts compared to the same period last year.

Using subjective activism, revenue from the freight business resumed growth. The company delivered 730 million tons of goods in '23, an increase of 7.3% over the previous year; the converted turnover of completed goods was 393.1 billion tons/km, an increase of 3.4% over the previous year. Among them, it completed the delivery volume of 620 million tons of coal, an increase of 10.2% over the previous year, and completed the arrival volume of 530 million tons of coal, an increase of 1.3% over the previous year. The company actively served national strategies such as ensuring the supply of electricity and coal and maintaining smooth access, and strived to overcome the effects of adverse factors such as fluctuations in the freight market and bad weather, and fully unleashed the efficiency of coal transportation channels such as Daqin and Hou Yue. Affected by this, the company's freight business revenue in 2012 was about 61.2 billion yuan, up 0.8% year on year, and changed from negative to positive over the same period last year (-2.6%); Haoji Railway+Shuohuang Railway contributed a total investment income of 2.54 billion yuan, a decrease of 6.0% year on year. From January to January '24, the Daqin Line completed cargo transportation volume of 98.24 million tons, a year-on-year decrease of 6.02%.

Demand for passenger transportation bottomed out and passenger revenue recovered rapidly. The company sent 42.84 million passengers in '23, an increase of 112% over the same period in '22; completed passenger turnover of 3.1 billion people and kilometers, an increase of 107% over the same period in '22. Affected by this, the company's passenger transport business revenue in '23 was about 8.92 billion yuan, up 119% over the same period in '22 and up 17.1% over the same period in '19.

The increase in costs was lower than the increase in revenue, and the gross margin of the railway transport business rebounded. The company's operating costs of railway transportation business increased 6.4% year on year in '23. Among them, passenger service fees and locomotive leasing costs increased 58% and 64%, respectively; total truck usage fees+truck service fees decreased 3.3% year on year; overhaul expenses decreased 29.7% year on year; labor costs and depreciation increased 4.8% and 0.54% year on year, respectively. Taken together, the company's gross margin of railway transportation business in '23 was 20.5%, an increase of 0.61 pct over the same period in '22, and a decrease of 2.46 pct over the same period in '19.

The company discloses its 2024 operating targets. The estimated number of passengers sent in 2024 is 43 million; the volume of goods sent is 720 million tons; converted to a turnover of 395 billion tons and kilometers, an increase of 0.48% over 2008. Among them, the Daqin Line's cargo volume was 410 million tons, down 2.9% from '23. The 2024 revenue budget is $79.5 billion.

Investment advice: Although objective factors such as weather and safety supervision in '23 disrupted the company's supply, the company stabilized core traffic volume and achieved a steady increase in bulk cargo traffic by strengthening cooperation with key enterprises such as coal companies and power plants; the company announced a three-year (2023-2025) shareholder dividend return plan, and the cash dividend ratio was not less than 55% of the total net profit to the mother for the year. Considering declining demand, we lowered the company's 24-25 net profit forecast by 11%/10% to 12.3 billion yuan and 12.5 billion yuan, respectively, and added the 26-year net profit forecast of 13 billion yuan; maintaining the company's “increase in holdings” rating.

Risk warning: Demand for coal has declined due to a downturn in the macroeconomic economy or changes in the energy consumption structure; new railway diversion company business; road and other means of transportation diversion company business; cash dividends are lower than market expectations.