Brief performance review

On April 29, 2024, the Beijing-Shanghai High Speed Rail released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 40.683 billion yuan, a year-on-year increase of 110.4%; realized net profit to mother of 11,546 billion yuan, an increase of 2103.63% over the previous year. The 1Q2024 company achieved operating income of 10.106 billion yuan, an increase of 13.06% over the previous year, and realized net profit of 2,963 billion yuan, an increase of 33.11% over the previous year.

Management analysis

Demand for passenger transportation has recovered strongly, and the company's revenue has increased dramatically. In 2023, the company's revenue increased 110.4% year on year, mainly due to a positive recovery in the domestic passenger transport market situation and a sharp increase in the company's traffic volume. In 2023, the railway completed passenger traffic of 3,855 billion people, an increase of 130.4% over the previous year; completed passenger turnover of 1472,936 billion people kilometers, an increase of 123.9% over the previous year. 2023 The Beijing-Shanghai High Speed Rail Main Line carried 53.252 million passengers throughout the year, an increase of 209.1% over the previous year; the operating mileage of cross-line trains reached 92.044 million kilometers, an increase of 66.2% over the previous year; the operating mileage of trains on the Beijing-Fuzhou Anhui Company completed 35.595 million train kilometers, an increase of 53.7% over the previous year.

Gross margin increased significantly, and expense ratios improved year over year. In 2023, the company achieved a gross profit margin of 45.8%, an increase of 32.26pct over the previous year, mainly due to stable company costs and a sharp increase in revenue, which led to an increase in gross margin. In terms of the cost ratio, the company's expense ratio for the 2023 period was 7.81%, down 11.32 pcts year on year, of which the management fee rate was 1.97%, down 2.12 pct year on year; R&D expenses rate was 0.03%, up 0.01 pct year on year; and financial expenses ratio was 5.81%, down 9.21 pct year on year. The year-on-year increase in gross margin compounded the year-on-year improvement in the expense ratio. In 2023, the company's net interest rate to mother was 28.4%, an increase of 31.36 pcts over the previous year.

Q1 Railway traffic increased year-on-year, and the company's profit is expected to continue to improve. According to China Railway Group's announcement, from January to March 2024, the number of passengers sent by domestic railways was 966 million, up 27.9% year on year and recovered to 115.5% in 2019; passenger turnover was 394.7 billion people kilometers, up 24.1% year on year, and recovered to 107.9% in 2019. Looking at the medium to long term, the company has implemented a floating fare mechanism. The rigid demand for future business travel and the increase in ticket prices for Beijing-Shanghai routes will further support price increases. At the same time, the subsidiary Beijing-Fuzhou Anhui has a remarkable line advantage. After the road network is improved, the scale effect will be released, and profits are expected to continue to improve.

Profit Forecasts, Valuations, and Ratings

Taking into account the pace of recovery in railway passenger traffic, the company adjusted the 2024-2025 net profit forecast of 13.77 billion yuan and 15.6 billion yuan, and added the 2026 net profit forecast of 17.39 billion yuan. Maintain a “buy” rating.

Risk warning

Passenger traffic recovery falls short of expectations, risk of pricing policy changes, safety risks, risk of drastic cost changes, and risk of shareholder holdings reduction.