Incident: Daqin Railway announced its 2024 semi-annual results. Net profit attributable to the owner of the parent company was 5.864 billion yuan in the first half of 2024. Compared with the same period last year, the year-on-year decrease was 22.21%, and the performance was basically in line with expectations.

Both supply and demand in the coal industry were weak in the first half of the year, and the company's freight turnover growth rate was under pressure. On the coal supply side, affected by safety supervision, raw coal production in Shanxi Province in the first half of the year was 0.588 billion tons, down 13.5% year on year; on the demand side, overall coal consumption was weak due to macroeconomic and hydropower squeezing. Affected by this, the company completed a total cargo transportation volume of 0.193 billion tons in the first half of the year, a year-on-year decrease of 7.05%; the company's freight turnover was 179.9 billion tons/km, a year-on-year decrease of 8.17%.

The company issued the “Notice on the 2024 Semi-Annual Profit Distribution Plan” and plans to distribute a cash dividend of 0.13 yuan (tax included) per share to all shareholders. In order to better return shareholders, the company plans to distribute a cash dividend of 0.13 yuan (tax included) and yuan (tax included) to all shareholders, accounting for 40.24% of the company's net profit for the 2024 semi-annual consolidated statement.

Demand for “transit to rail” transportation is gradually increasing under carbon emission restrictions. In February 2024, the Central Committee on Finance and Economics held a meeting to study the issue of effectively reducing logistics costs for the whole society. The meeting pointed out that it is necessary to optimize the transportation structure, strengthen “transit to rail” and “transit to water”, deepen the reform of the integrated transportation system, and form a unified, efficient, competitive and orderly logistics market. According to Ministry of Transport figures, in 2023, China's road freight volume will account for 72.44% of the total freight volume, and railway freight volume will account for 9.00% overall, which is at a low level. Therefore, under carbon emission restrictions, demand for commodity “transit to rail” transportation will gradually increase. The company plans to continue to increase diversified supply development and multimodal transport system construction in the future to lay the foundation for transformation and development.

In the context of railway market-based reforms, the value of railway freight assets is expected to be reshaped. During the 3rd Plenary Session of the Central Committee in July 2024, railway market-based reforms were put on the agenda again. One of the important directions of freight reform is logistics transformation. We believe that the transformation of railway freight logistics will help railway freight achieve both volume and price increases, thereby driving the reshaping of the value of railway freight assets.

In line with the company's 2024 mid-year report, the profit forecast was lowered to maintain the “purchase” rating: In line with the company's 2024 mid-year report, considering that the freight volume of the Daqin Line was under pressure in the first half of 24, the freight volume of the Daqin Line is expected to drop 7% in 24 (the original assumption was a 3% year-on-year decline), and freight turnover fell 5% year on year (the original assumption was a 3% year-on-year decline); at the same time, considering China Railway's recent vigorous promotion of “bus transfer rail”, the company's freight rate level is expected to drop slightly in stages.

The company's 2024E-2026E net profit is estimated to be 9.285, 10.656, and 12.018 billion yuan (the original 24E-26E profit forecast was 11.532, 11.785, and 12.276 billion yuan), and the corresponding PE is 13/11/10 times, respectively. The main business of the Canadian Railways is railway transportation, which is comparable to the Daqin Railway. The PE valuation center for the Canadian Railways in 2005-2023 was 18.62. Compared with Canadian Railways, which have the same type of overseas assets, the Daqin Railway still has room to improve. In the context of railway market-based reforms, the company's performance is expected to grow steadily in the future due to expectations of the transformation of railway freight into logistics. Maintain the Daqin Railway's “buy” rating.

Risk warning: Drastic changes in the energy structure; production safety accidents; tariff policy adjustments; depletion of coal sources in major sources.