Core views:

In 2023, the company achieved full-year revenue of 109.39 billion yuan, up 10.3% year on year, achieved net profit of 2.06 billion yuan, up 16.1% year on year, gross margin increased 1.3 percentage points to 11.4%, and profitability increased dramatically. The high-margin nuclear power engineering sector's revenue share increased to 21.9%; the company's revenue for the first quarter of 2024 increased 0.4% year on year, and net profit to mother increased 9.6% year on year. In terms of signing new contracts, the company's new contracts increased by 8.3% year-on-year throughout the year. Since September 23, the company has maintained high growth. As nuclear power investment and construction accelerates, the company is expected to fully benefit as a key enterprise in nuclear power construction.

occurrences

The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 109.39 billion yuan, up 10.3% year on year, and realized net profit of 2.06 billion yuan, up 16.1% year on year; the company achieved revenue of 29.04 billion yuan in the first quarter of 2024, an increase of 0.4% year on year, and realized net profit of 550 million yuan to mother, an increase of 9.6% year on year.

Brief review

Profitability increased, and performance maintained a high growth rate. In 2023, the company achieved full-year revenue of 109.39 billion yuan, an increase of 10.3% over the previous year, and achieved net profit of 2.06 billion yuan, an increase of 16.1% over the previous year. The reason why net profit growth rate in 2023 was higher than the revenue growth rate:

1) The gross margin of industrial and civil construction increased 1.3 percentage points to 9.5% compared to '22, and the gross margin for nuclear power construction remained at a high level of 13.5%; 2) Highly profitable nuclear power construction accelerated, confirming a 42.9% year-on-year increase in revenue, accounting for 21.9%; 3) Investment income increased by 140 million yuan year on year. The company's revenue and net profit growth rates for the first quarter of 2024 were 0.4% and 9.6% respectively. The difference in growth rates was mainly due to a year-on-year decrease of 50 million yuan in financial expenses.

There has been a steady increase in the amount of new contracts signed. The amount of new contracts signed by the company maintained steady growth. The amount of new contracts signed in 2023 was 15.64 billion yuan, an increase of 8.3% over the previous year, including 38.40 billion yuan for nuclear power projects, an increase of 1.0% over the previous year, continuing the high level of recent years. The amount of new contracts signed for industrial and civil engineering was 112.24 billion yuan, an increase of 11.1% over the previous year, which guarantees future revenue. On a monthly basis, the monthly growth rate of the amount of new contracts signed by the company has maintained a high growth rate since September 2023, with an average growth rate of 25.3%.

Nuclear power construction has accelerated, and the company has fully benefited. In 2023, there were 26 nuclear power units under construction in China, and 5 new units were started. The total investment in nuclear power project construction was 94.9 billion yuan, an increase of 20.8% over 2022, the highest level in nearly 5 years. The company signed a new nuclear power contract amount of 38.40 billion yuan in 2023, an increase of 1.0% over the previous year. Nuclear power construction continued to accelerate in 2024. In January-February, nuclear power investment increased 39.5% year on year. Brother's 2024 investment plan for China Nuclear Power was 121.55 billion yuan, an increase of 51.9% year on year. As the newly approved and started units in 2022/23 enter an intensive construction period, the company will fully benefit as a leading nuclear power construction enterprise.

Maintain the buy rating and raise the target price to $9.40. We adjusted the company's 2024-2026 EPS to 0.78/0.89/1.02 yuan (the original 2024-2025 forecast was 0.76/0.84 yuan). Based on the valuation level of 12XPE 2024 given by comparable companies, the corresponding target price was 9.40 yuan, leaving the purchase rating unchanged.

Risk analysis

Nuclear power projects fall short of expectations: Nuclear power projects have large investment volumes, long construction cycles, and the need to consider nuclear safety and back-end spent fuel treatment. The impact of multiple factors may cause nuclear power projects to fall short of expectations, making capital turnover difficult.

Risk of continued growth in debt size: The company's balance ratio continues to be high and slightly upward, and the debt size continues to expand. If the company's repayments fall short of expectations and liquidity is tight, there may be some pressure to repay debts.

PPP investment and operation risk: The company's PPP project investment scale is large and the repayment cycle is long. If real estate falls and adjusts beyond expectations, it may further affect local revenue, causing delays in repayment of the company's PPP projects and falling short of expectations.