The company achieved revenue of 225.73 billion yuan in 2021 (-0.85% year-on-year) and net profit of 10.30 billion yuan (-9.1% YoY). Taking into account that the tender demand for railway cars was lower than expected, the price pressure on the raw materials side was high, and the 2021 annual report data, we lowered the company's net profit forecast for 2022-23 to 1136/12.55 billion yuan (the original forecast was 133.7/14.32 billion yuan), and the additional net profit forecast for 2024 was 13.17 billion yuan.
Maintain a “buy” rating.
Financial Overview: Performance is in line with expectations. (1) Revenue and profit: The company achieved revenue of 2225.73 billion yuan in 2021 (-0.85% year-on-year) and net profit of 10.30 billion yuan (-9.1% year-on-year). In the fourth quarter alone, the company achieved revenue/net profit of 81.27 billion/3.84 billion yuan, -0.7%/-15.3% year on year. (2) Gross profit margin:
The consolidated gross margin in 2021 was 20.6%, -1.7 pcts year over year. (3) Expense rate: The total cost rate for the four items in 2021 was 15.2%, -0.9 pct over the previous year, of which the sales expense ratio was 3.2% (year-on-year - 0.6 pct). (4) Operating cash flow: Net cash flow inflow from operating activities in 2021 was 20.59 billion yuan (net outflow in 2020 was 2.03 billion yuan).
By business segment: In 2021, railway equipment/urban rail business/new industry/modern services achieved revenue of 900.69 billion/54.56 billion/71.82 billion/8.67 billion yuan respectively, +0.22%/-6.0%/+0.14%/+17.2%, gross profit margin 23.1%/20.4%/16.6%/27.9%, year-on-year -1.6pcts/+0.91pct/-4.5pcts/+2.8pcts. (1) Railway equipment: The revenue of locomotives/passenger cars/EMUs/trucks was 229.01 billion, 10.70 billion, 41.1 billion yuan, and 15.98 billion yuan respectively. The rise in railway equipment revenue was mainly driven by growth in the locomotive and bus business. (2) Urban rail business: Urban rail vehicle revenue was 47.90 billion yuan, accounting for 87.8% of urban rail business revenue. (3) Other: Among the new industrial businesses, wind power business revenue was 30.24 billion yuan.
Outlook: In-hand orders are still plentiful, and we are optimistic about long-term development prospects. (1) Order situation: In 2021, the company signed about 221 billion yuan (-8.7%) of new orders, including 35 billion yuan for international business. At the end of the period, on-hand orders were about 220.3 billion yuan (-12.8%), of which the international business had on-hand orders of about 86 billion yuan. (2) Railway+urban rail: According to the “National Comprehensive Three-dimensional Transportation Network Plan Outline”, by 2035, the scale of the national railway network will reach about 200,000 kilometers, of which about 70,000 kilometers of high-speed rail (including some intercity railways). According to estimates by the National Railway Administration, at the end of 2020, China's railway operating mileage /high-speed rail operating mileage will be about 146,000 km/38,000 kilometers. Demand for rail transit equipment is expected to be stable in the future.
Risk factors: EMU tendering and urban rail construction fell short of expectations; overseas order delivery fell short of expectations; new business expansion and overseas business expansion fell short of expectations; raw material prices fluctuated greatly; macroeconomic growth fell short of expectations.
Investment suggestions: The company is operating steadily. After maintenance, the market and urban rail subways are expected to continue to grow brilliantly, and business prospects for new industries are promising. Considering that the bidding demand for Railway Motor Vehicle was lower than expected, we lowered the company's net profit forecast for 2022-23 to 1136/12.55 billion yuan (the original forecast was 1337/14.32 billion yuan), and the additional net profit forecast for 2024 was 13.17 billion yuan. We consider China Express, Traffic Control Technology, and Times Electric, which are also in the railway industry chain, as comparable companies. Their 2022 Wind's profit is expected to correspond to an average PE of about 19 times. Considering that the company's growth is slightly lower than that of comparable companies, we gave the company a 2022 17x PE valuation, with a corresponding target price of 6.7 yuan, maintaining the “buy” rating.