1H22's performance fell short of our expectations.
The company announced 1H22 results: revenue was 81.297 billion yuan, down 14.8% from the same period last year, and net profit was 3.131 billion yuan, corresponding to 0.11 yuan per share, down 21.5% from the same period last year, which was lower than our expectation, mainly due to the impact of the epidemic and macroeconomic downturn. From a quarterly point of view, the company's second-quarter income was 50.65 billion yuan, down 6% from the same period last year, and its mother's net profit was 2.911 billion yuan, an increase of 9.9% over the same period last year.
EMU demand is declining, affecting income and profitability. The income of 1H22's railway equipment business totaled 25.058 billion yuan, down 33.59 percent from the same period last year. Among them, the income of locomotives and trucks increased significantly, increasing by 263% to 8.549 billion yuan respectively over the same period last year. Affected by the epidemic, the revenue of EMU and passenger cars dropped significantly, by 74% to 1.136 billion yuan, respectively. The income from urban rail and urban infrastructure business was 21.812 billion yuan, down 4.38% from the same period last year, of which the income from urban rail vehicles was 17.97 billion yuan, down 2.67 billion yuan from the same period last year. Due to the declining demand for wind power, the company's 1H22 new industry income was 30.445 billion yuan, down 3.22% from the same period last year.
The gross profit margin decreased compared with the same period last year, and the operating cash flow improved. 1H22/2Q22 's comprehensive gross profit margin fell by 0.9ppt/1ppt to 20% pound 19.8%, mainly due to the change in product sales structure brought about by the sharp decline in EMU revenue. 1H22's net profit margin was 3.9%, a year-on-year decrease in 0.3ppt. 1H22 had a net operating cash outflow of 1.929 billion yuan, compared with a net outflow of 11.571 billion yuan in the same period last year.
Trend of development
The epidemic situation has a great impact on the railway industry. Since 2020, the epidemic has led to a sharp decline in railway passenger traffic. From January to July 2022, the number of railway passengers was 1.01 billion, down 39.5% from the same period last year, and the passenger volume was only 48% of that in the same period in 2019. Affected by this, the willingness and capacity of capital expenditure of the National Railway Group have been restricted. at the same time, the decline in vehicle utilization has obviously hindered the demand for maintenance and bidding for new equipment. The number of bids for EMU declined significantly in 2021. 1H22's EMU business income is 7 billion yuan, accounting for 28% of the railway equipment business income, compared with 30.3 billion yuan in the same period in 2019, accounting for 56%. The EMU business with high gross profit margin has a greater impact on the overall profitability. Looking ahead, if the epidemic improves and passenger volume picks up, we expect to form a recovery in demand on a certain scale.
Profit forecast and valuation
Considering that the epidemic has a great impact on the demand for railway equipment, we have lowered the 2022 EPS forecast for 2023 by 28% to 0.29 yuan. The company's current A share price corresponds to 2022 8.6x/8.0x 2023 17.2xCompact 16.0xPUniverse H share price corresponds to 2022Compact 2023 PZX Pmax E. Taking into account the profit reduction and valuation switch, we lowered the target price of 15% 18.2x/8.9x H by 15% to 5.25 yuan / HK $3.00, corresponding to the 17.0x/8.3x 17.0x/8.3x E in 2022 and E in 2023, and maintained an upside rating of 6% and 4%.
Risk.
Downstream bidding is not as expected; passenger volume is not as expected.