We have reaffirmed our “Buy” rating and maintain our target price at HK$7.70. We maintain China Railway (the “Company”) earnings forecast per share for 2024/2025/2026 at RMB 1.548/RMB 1.735/RMB 1.900. We maintain a target price of HK$7.70, which is equivalent to 6.0 times/5.2 times/4.7 times 2024/2025/2026 EV/EBITDA.

In 2023, revenue from the resource utilization business was RMB 8.37 billion (up 11.5% year on year), the amount of new contracts signed was RMB 33.44 billion (up 41.7% year on year), and gross margin was 59.7% (up 4.1 percentage points year on year). The company produced 283,800 tons of copper and 152,000 tons of molybdenum in 2023, all ranking among the leading domestic companies. Since the beginning of the year, copper prices and molybdenum prices have risen by 30% and 23% respectively, significantly improving the operating performance of the company's resource utilization business.

According to data from the China Index Research Institute, China Railway's real estate sales in 2023 reached RMB 69.7 billion (ranking 21st), with a sales area of 4.46 million square meters (ranking 20th); the equity acquisition amount was RMB 13.6 billion (ranking 18th), the equity acquisition area was 2.12 million square meters (ranking 20th), and the added value of real estate equity was RMB 39.8 billion (ranking 14th), which basically ranked among the top 20 developers in the country.

The gross margin of the company's real estate development business was 14.5% in 2023, a sharp drop of more than half from 29.2% in 2019. When the market improves, there will be plenty of room for recovery. With the introduction of a number of policies to support the real estate market, and the company reduced costs by purchasing land at low prices during the past two years of downturn, its real estate development business should recover at an accelerated pace.

Catalysts: 1) Copper and molybdenum prices have risen or continue to drive the operating performance of the resource utilization business; 2) Benefiting from the release of support policies and the reduction in costs brought about by land purchases during the past two years of downturn, the real estate development business should accelerate recovery.

Risks: 1) Government infrastructure spending falls short of expectations; 2) Overseas project risk.