CHINA RAILWAY(601390) 光大证券·2024-11-10 13:21Investment Rating - The report maintains a "Buy" rating for both A-shares and H-shares of China Railway (601390.SH/0390.HK) [7] Core Views - The company is experiencing operational pressure, but cash flow is expected to continue improving due to traditional peak collection season in Q4 and debt reduction efforts [4][3] - Revenue and net profit for the first three quarters of 2024 have declined year-on-year, with total revenue of CNY 820.28 billion, a decrease of 7.3%, and net profit attributable to shareholders of CNY 20.57 billion, down 14.3% [1][4] - The company has a sufficient backlog of contracts and is seeing significant growth in new orders from emerging businesses, which supports the positive outlook despite the current challenges [4] Summary by Sections Financial Performance - For the first nine months of 2024, the company reported revenues of CNY 820.28 billion, a net profit of CNY 20.57 billion, and a net profit excluding non-recurring items of CNY 19.01 billion, reflecting year-on-year declines of 7.3%, 14.3%, and 15.9% respectively [1] - In Q3 2024, the company achieved revenues of CNY 275.76 billion, with net profit and net profit excluding non-recurring items at CNY 6.29 billion and CNY 5.92 billion, showing declines of 6.1%, 19.1%, and 19.7% year-on-year [1] Segment Performance - The infrastructure segment remains the primary revenue source, contributing CNY 713.19 billion, accounting for 87% of total revenue, but down 7.7% year-on-year with a gross margin of 7.6% [2] - Other segments such as real estate development, equipment manufacturing, and design consulting also saw revenue declines, with respective revenues of CNY 21.91 billion, CNY 19.84 billion, and CNY 12.85 billion, down 13.2%, 1.1%, and 4.1% year-on-year [2] Cost Management and Cash Flow - The company has managed its expense ratios well, with sales, management, financial, and R&D expense ratios at 0.5%, 2.2%, 0.4%, and 2.0% respectively, showing slight increases year-on-year [3] - Operating cash flow showed improvement in Q3 2024, with a net outflow of CNY 1.93 billion, a reduction of CNY 1.83 billion compared to the same period last year [3] Contract and Order Trends - New contracts signed as of September 2024 totaled CNY 15,278.6 billion, down 15.2% year-on-year, with domestic and international contracts at CNY 14,046.3 billion and CNY 1,232.3 billion, respectively [4] - Emerging business segments, including resource utilization and new energy, saw significant growth in new contracts, with increases of 22% and 23.4% year-on-year [4] Earnings Forecast and Valuation - Due to tight local finances and a sluggish real estate market, the company’s profit forecasts for 2024-2026 have been revised downwards to CNY 30.2 billion, CNY 31.5 billion, and CNY 33 billion, representing reductions of 18%, 21%, and 23% respectively [4]