The first quarter results were in line with expectations. The volume of new orders was growing steadily, maintaining the “Buy” rating Tunnel Co., Ltd.'s report for the first quarter of 2024. The company's core performance grew steadily, and the amount of new contracts signed maintained an upward trend. There are plenty of orders in hand, which is expected to drive continued improvement in future performance. Therefore, maintaining the original profit forecast, the net profit due to mother for 2024-2026 is expected to be 30.7, 32.2, and 3.33 billion yuan, respectively, and EPS is 0.98, 1.02, and 1.06 yuan respectively. The PE valuation corresponding to the current stock price is 6.9, 6.6, and 6.3 times, respectively. Over the past 10 years, the company's annual cash dividend ratio has exceeded 30%. The dividend rate in 2023 was further increased by 5.1 percentage points to 35.3%. In the future, under the guidance of the “Nine Rules of the New Country”, it is expected that the shareholder return level will continue to be raised and the “buy” rating will be maintained.

Gross margin has been effectively improved, and digital factor values are expected to be revalued

The company achieved operating income and net profit of 14.13 billion yuan and 4.4 billion yuan in 2024Q1, with year-on-year increases of 5.3% and 3.1%, respectively. The gross sales margin and net profit margin were 12.5% and 3.3% respectively, +1.6 and -0.1 percentage points, respectively, compared with the same period in 2023. The total amount of new contracts signed by the company in the first quarter of 2024 was 22.66 billion yuan, an increase of 7.15% over the previous year. Among them, construction, design and operation businesses signed new orders of 18.1.9 billion yuan, 15.2 billion yuan, and 2.93 billion yuan respectively, +10.02%, -18.67%, and 6.87%, respectively. It is worth noting that the company signed 38 new digital business orders, with a total order value of 158.957 million yuan. The company's operating group undertakes the operation and maintenance tasks of more than 95% of Shanghai's municipal pipelines, and can accumulate massive amounts of data. In 2023, the “Low Speed Work Vehicle Time and Space” data product was also traded on the Shanghai Digital Exchange. In the context of the development of the digital economy, the company's data elements are expected to be revalued.

The financing cost advantage is remarkable. The first ABS fundraising in 2024 completed the smooth operation of the company's financing channels. From 2023 to the first quarter of 2024, a total of 3 public bonds were issued, with a cumulative issuance scale of 4 billion yuan. The coupon interest rate was less than 2.8%, and the financing cost advantage was obvious. An announcement was issued on April 29, stating that on March 24, 2023, the board of directors meeting agreed that its wholly-owned subsidiary Shanghai Yuansheng Financial Leasing Co., Ltd. would apply for storage shelves to issue asset securitization products (ABS) of no more than 5 billion yuan. The first issue of ABS was released on May 31, 2023, with an issuance amount of 1.87 billion yuan. The first phase of ABS in 2024 is the second phase of the product under Storage Shelf, with an issuance amount of 1,533 billion yuan. As of April 26, 2024, the fundraising scale for this special program has been reached. The funds raised will mainly be used to release bank credit lines and repay shareholders' loans.

Risk warning: The growth rate of new orders fell short of expectations, and the development of emerging businesses fell short of expectations.