DAQIN RAILWAY(601006)：2023 AND 1Q24 RESULTS MISS DIVIDEND REMAINS LARGELY STABLE-格隆汇

机构：中金公司
研究员：Wenjie ZHANG/Qibin FENG/Xin YANG

　　2023 and 1Q24 results miss our and market expectations
　　Daqin Railway announced its 2023 and 1Q24 results. In 2023, revenue rose 6.9% YoY to Rmb81.02bn, and net profit attributable to shareholders grew 6.6% YoY to Rmb11.93bn, missing our and market expectations, mainly due to slightly higher-than-expected passenger and staff costs.
　　In 1Q24, revenue fell 7.9% YoY to Rmb18.27bn, and net profit attributable to shareholders declined 16.6% YoY to Rmb3.05bn, missing market expectations. This was mainly due to weak coal transport volume (transport volume of Daqin Line decreased 6.0% YoY in 1Q24).
　　Trends to watch
　　Railway transport volume of the Daqin Line was slightly weak in 1Q24. According to the National Bureau of Statistics, raw coal output fell 4.1% YoY to about 1.11bnt in 1Q24. Data from cctdcoal.com shows that railway coal transport volume rose 1.8% YoY to 710mnt in 1Q24, and railway transport volume of key state-owned coal mines grew 3.8% YoY to 316mnt over the same period. The firm announced that the freight volume of the Daqin Line decreased 6.0% YoY to 98.24mnt in 1Q24.
　　The firm announced a total dividend of Rmb6.93bn for 2023, implying a dividend payout ratio of 58.1%. The dividend for 2023 was slightly lower than that in 2018-2022 (Rmb7.1-7.3bn). Given that the outstanding balance of Daqin Railway’s convertible bonds was Rmb14.737bn as of April 26, 2024, the firm plans to keep the total cash dividend distribution unchanged, and eventually adjust the cash dividend per share based on the total share capital on the date of profit distribution. Based on the firm’s latest share capital and announced cash dividends, its dividend yield at the current price is about 5.3%. We estimate the dividend yield at about 4.8% after considering conversion of all convertible bonds.
　　Financials and valuation
　　We lower our 2024 and 2025 earnings forecasts 17.1% and 15.3% to Rmb11.11bn and Rmb11.36bn as costs slightly beat our expectations and transport volume declines, implying YoY growth of -6.9% and 2.3%. Considering the downward revision of earnings forecasts but dividend remaining largely stable, we cut our target price 9.3% to Rmb7.89, implying 12.5x 2024e and 12.1x 2025e P/E, offering 6.0% upside. The stock is trading at 11.8x 2024e and 11.5x 2025e P/E. We maintain an OUTPERFORM rating.
　　Risks
　　Higher-than-expected staff costs; disappointing transport volume of the Daqin Line.