Daqin Railway announced results for the first half of 2024. 24H1 achieved operating income of 36.61 billion yuan, -9.5% year-on-year, and realized net profit of 5.86 billion yuan to mother, -22.2% year-on-year, and net profit of 5.84 billion yuan after deducting non-return to mother net profit of 5.84 billion yuan, or -22.6% year-on-year. Among them, Q2 achieved operating income of 18.34 billion yuan, -11% year-on-year, realized net profit of 2.82 billion yuan, or -27.4% year-on-year, and realized net profit without deduction of 2.8 billion yuan to mother, or -28% year-on-year.

Q2 Coal traffic on the Daqin Line fell 8.1% year on year, and fell 18.4% year on year in July. In terms of traffic volume, 24H1 completed shipping volume of 0.34 billion tons of goods, a year-on-year decrease of 1.3%; cargo turnover of 181.5 billion tonkilometers, a year-on-year decrease of 8.1%; and coal delivery volume of 0.29 billion tons, an increase of 0.2% over the previous year. 24H1's core operating asset, the Daqin Line coal traffic volume was 0.19 billion tons, down 7.1% year on year. Among them, the Q2 Daqin Line coal traffic volume was 0.09 billion tons, down 8.1% year on year. On a monthly basis, April, May, June, and July, they fell 0.9%, 7.6%, 14.6%, and 18.4% respectively. The decline in traffic volume on the Daqin Line was mainly due to: 1. Under strong supervision and weak coal prices, domestic raw coal production was insufficient. 24H1 domestic raw coal production was -1.7% year-on-year, and raw coal production in Shanxi was -13.5%; Continued The increase had an impact on domestic coal shipments. 24H1 coal imports were +12.5% year-on-year; 3. Clean energy output increased, combined with weak non-electricity demand, and coal consumption growth fell short of expectations. 24H1 cement and crude steel production was -10% and -1.1%, respectively.

Freight revenue was dragged down by the decline in traffic volume, and passenger revenue increased year-on-year due to better demand for railway passenger transportation. By business, on the revenue side, 24H1 achieved freight revenue of 26.54 billion yuan, a year-on-year decrease of 14.3%, and passenger revenue of 4.91 billion yuan, an increase of 19.7% over the previous year. On the cost side, 24H1's main business cost was 28.6 billion yuan, down 3.8% year on year. Among them, personnel expenses accounted for the higher cost of 9.56 billion yuan, up 0.8% year on year, and freight service fees were 7.06 billion yuan, down 16.8% year on year, mainly due to the decline in cargo transportation volume, passenger transportation service fees were 3.15 billion yuan, up 14.8% year on year, and depreciation expenses were 2.37 billion yuan, up 5.4% year on year. In terms of investment income, Shuohuang Railway 24H1 contributed 1.41 billion yuan in investment income, up 1% year on year; Haoji Railway 24H1 contributed 0.02 billion yuan in investment income, down 59.6% year on year.

Investment advice. The company owns the Daqin Railway, an important channel for the transportation of coal from west to east. In the short term, it is affected by the weak performance of railway coal traffic. In the medium to long term, coal production is further concentrated in the “Three West” region, and the company is expected to benefit from the continuous advancement of public transit railways. The Daqin Railway's mid-term dividend was 0.13 yuan. After the dividend, the forced share transfer price was revised down to 6.85 yuan. According to the closing price on August 28, 2024, the 24-year dividend rate range corresponding to the total share conversion is 3.9%-4.3%. Based on the recent weak operation of railway coal traffic, we slightly downgraded our performance forecast. We expect the company's net profit to be 9.52, 9.92, and 10.09 billion yuan in 24-26, corresponding to 12.7x PE and 0.9x PB in 24, downgraded to a “gain” rating.

Risk warning: The macroeconomic growth rate falls short of expectations, etc.