Revenue and profit are under slight pressure, and high dividends enhance investment attractiveness
The company achieved revenue of 46.05 billion yuan in '23, -1.16% year over year (if chemical revenue in January and February '23 was removed, revenue fell 0.15% year on year). Non-net profit of 13.5 billion and 1.29 billion yuan was deducted from the mother, -13.3% and +0.25% year-on-year, mainly due to the decline in gross margin and return on investment in '23. 23Q4 achieved revenue of 16.33 billion yuan in a single quarter, +14% year over year, and non-net profit attributable to mother and net income of 590 million yuan and 550 million yuan, respectively, +6.1% and +12.5% year-on-year. 24Q1 achieved revenue of 7.73 billion yuan, +8.4% year-on-year, with net profit attributable to mother and net profit of 190 million and 180 million respectively, +20.8% and +14.9% year-on-year, mainly due to improved gross margin and increased government subsidies. The company issued the “Dividend Return Plan for the Next Three Years (2023-2025)”. If the conditions are met, the annual cash dividend is not less than 10% of the distributable profit achieved in the current year, and the cash dividend for the past three years is not less than 30% of the average annual distributed profit achieved in the last three years. In '23, the company's proposed cash dividend amount was 320 million, with a dividend ratio of 24%, an increase of 4 pcts over the previous year, corresponding to a dividend rate of 3.18%.
Considering that local debt pressure may slow down project implementation, we slightly lowered the company's profit forecast. We expect the company's net profit to be 15.6, 18.2, and 2.11 billion yuan (previous value of 19.26/2.25 billion in 24 and 25), corresponding PE of 6.4, 5.5, and 4.7 times. Approval grants the company 8.5 times PE in 24 years, and the corresponding target price is 5.09 yuan, maintaining the “buy” rating.
Maintaining multiple main highway lines, construction is dragging down gross profit
By business, the company's construction and maintenance business achieved revenue of 41.49 billion yuan and 4.12 billion yuan respectively in 2013, +0.56% and -8.78% year-on-year, with gross margins of 7.83% and 9.40%, respectively, and -0.41pct and +3.32pct year-on-year.
By the end of 2023, the company had maintained more than 7,100 kilometers of main road lines. The company's overall gross profit margin in '23 was 8.04%, -0.08pct year on year, mainly driven by the decline in construction business. The gross margins for 23Q4 and 24Q1 were 8.9% and 7.3%, respectively, -0.96pct and +0.56pct year-on-year.
23 New orders reached a record high, and the boom in regional infrastructure is expected to support the release of the company's new contract amount of 95.212 billion yuan in '23, an increase of 77.60% over the previous year, a record high. The 24Q1 company signed new and unsuccessful contracts of 60.23 billion yuan, or 14.405 billion yuan, or -19.2% YoY and +33.1%, totaling +11.8% YoY. As of 24Q1, the total amount of unfinished projects was 132.67 billion yuan, 2.9 times the revenue for '23. Considering the high planned value of Zhejiang's transportation investment of 350 billion dollars in '24, and the average growth rate of transportation investment by the majority shareholder Zhejiang Trading Co., Ltd. needed to reach 31% or more to achieve the “14th Five-Year Plan” target, the high level of regional infrastructure is expected to support the release of performance.
The overall fee control effect was good, and the net interest rate declined slightly
The cost rate for the 23-year period was 3.92%, -0.01pct year on year. Among them, sales, management, R&D, and finance cost ratios changed 0.0pct, +0.03pct, +0.01pct, and -0.04pct, respectively. Asset and credit impairment losses decreased by 0.38 million to 116 million year on year, investment income and asset disposal income decreased by 224 million and 84 million year on year. Under the combined influence, the net interest rate was 3.18%, -0.59 pct year on year. The net amount of CFO in '23 was 570 million, with a year-on-year decrease of 480 million dollars. The payment/payout ratio was 90.1% and 87.4%, respectively, -7.5 pct and -8 pct, respectively. Accounts receivable and contract assets were 6.6 billion and 27.9 billion yuan, an increase of 790 million and 5.68 billion yuan from the beginning of the year, mainly due to a significant increase in completed and unsettled amounts.
Risk warning: downstream demand falls short of expectations, order execution falls short of expectations, cost control falls short of expectations, potential safety issues.