Steady operation in the first quarter, maintaining a “buy” rating
The company released its 2024 quarterly report. In 24Q1, the company achieved revenue of 140,332 billion yuan, net profit to mother of 3,045 billion yuan, +0.79% year-on-year, and net profit after deducting non-return to mother of 3,021 billion yuan, +1.32% year-on-year.
The main reasons why profit growth in the first quarter was slower than revenue growth: 1) gross margin declined; 2) net investment income of 24Q1 joint ventures decreased by 36.54% year on year. Increased size of accounts receivable and changes in account age structure led to credit impairment losses of 1.5 billion yuan, an increase of 35.98% year on year, and asset impairment losses of 420 million yuan (loss of 111 million yuan in the same period last year). We expect the company to achieve net profit of 148, 169, and 19.6 billion dollars in 24-26, corresponding PE of 6.07/5.29/4.58, respectively, to maintain a “buy” rating.
Profitability declined slightly, and expense ratios improved year over year.
2024Q1 achieved a gross profit margin of 11.79%, -0.41pct year over year. The cost ratio decreased by 0.97 pct to 7.06%. Among them, sales, management, finance, and R&D expenses were 0.23%, 3.01%, 1.54%, and 2.27%, respectively, +0.03, +0.08, -1.16, and +0.09pct, respectively. The main reason for the sharp year-on-year decrease in financial expenses was -802,100 yuan in the first quarter (99.62 million yuan in the same period last year), which led to a decrease of -40.12%. Under the combined influence, the net interest rate was 2.86%, -0.04pct year over year. 24Q1 CFO had a net outflow of 39.03 billion yuan, an increase of 6.04 billion yuan over the same period last year. The revenue ratio and payout ratio were 96.23% and 113.33% respectively, +8.66pct and +17.9pct, respectively.
The energy and power sector continues to increase in new contracts, and the water conservancy sector is expected to benefit from increased industry prosperity, and 24Q1 companies signed new contracts of 331,118 billion yuan, +2.71% over the same period last year. By business, new contracts for energy and electricity, water resources and environment, urban construction and infrastructure, and other businesses were 1987.56, 534.27, 695.35, and 9.4 billion yuan, respectively, or +26.51%, +6.27%, -34.27%, and +2.24%, respectively.
By region, 277.908 billion yuan of new domestic contracts were signed, +3.74% year on year, and 53.21 billion yuan of new overseas contracts were signed, -2.33% year over year. We believe that the high growth in water infrastructure investment combined with the issuance of an additional trillion treasury bonds issued in the fourth quarter of '23 is expected to drive high growth in the water conservancy sector, and the company's water conservancy business is expected to fully benefit. In the first quarter of this year, the country implemented 23,500 water conservancy projects with a scale of 4.7 trillion yuan, implemented an investment of 778.7 billion yuan in water conservancy construction, +93.3% over the same period last year, and completed an investment of 193.3 billion yuan in water conservancy construction, +4.4% over the same period in history. By the end of February this year, the Ministry of Finance will disburse all the additional treasury bond funds of 1 trillion yuan to local authorities. Judging from data for the first quarter, urban and rural community spending, agriculture, forestry and water expenses, disaster prevention and emergency management expenses, which were mainly invested in additional treasury bonds, increased by 12.1%, 13.1%, and 53.4%, respectively, over the same period last year, all achieving double-digit growth.
Risk warning: Investment in power infrastructure is slowing down, repayment pressure is high, and policies fall short of expectations.