The performance was in line with expectations; the dividend rate dropped to 34%
Zhejiang Shanghai, Hangzhou and Ningbo reported a net profit of 4.762 billion yuan in 2021 (up 97% year-on-year after restatement), in line with our forecast of 4.635 billion yuan and Bloomberg's consensus forecast of 4.843 billion yuan. 2H21's homing net profit increased by about 4 per cent year-on-year (after restatement), mainly due to strong growth in the securities business. Taking into account the sporadic outbreak of the COVID-19 epidemic and the recent poor stock market, we will lower the 2022 Universe net profit forecast by 4.2% to 5 billion / 5.423 billion yuan in 2023, and introduce the 2024 net profit forecast of 5.583 billion yuan. We still raise the target price by 5.5% to HK $9.33 based on the segment valuation method, mainly due to the rolling valuation window for the toll road business from 2021 to 2022 and the appreciation of the RMB against the Hong Kong dollar. The company declares a full-year dividend of 0.375 yuan per share (up 5.6% from a year earlier), with a dividend rate of 34% (2020: 51%) and a corresponding dividend yield of 6.7% (historical average:
5.8%). Maintain a "buy" rating.
2H21: toll income is flat; Securities Market shows resilience
The securities business performed strongly in 2H21. The company's 2H21 toll road and securities business account for about 58 per cent and 40 per cent of revenue, respectively, and segment profits account for about 43 per cent and 47 per cent, respectively. In terms of toll roads, 2H21 revenues were flat year-on-year, while segment net profit decreased by about 11% year-on-year (after restatement) due to a high base and traffic affected by the outbreak of COVID-19 in Zhejiang Province and surrounding provinces in August / November / December 2021. In the securities business, the net profit of the 2H21 division increased by 50% compared with the same period last year, mainly due to a rebound in A-share trading volume and a strong return on securities investment. In a low-interest market environment, the company issued 230 million euros of convertible bonds at zero coupon in January 2021 and $470 million at 1.638% in July 2021, reducing the overall interest rate on interest-bearing liabilities.
1Q22: the epidemic has led to weak toll revenue growth so far this year
From January to February of 2022, the toll income of Shanghai-Hangzhou-Ningbo Expressway, the core asset of the company, was the same as the same period last year, and the toll income of Shanghai-Hangzhou-Ningbo Expressway increased by 1.4% compared with the same period last year. We believe that the slow growth in toll revenue is caused by sporadic outbreaks of novel coronavirus infection in Zhejiang Province, although freight demand remains resilient. 2M22 Zhejiang industrial value added and exports increased by 10.7% and 26.9% respectively, indicating strong demand for freight. However, we believe that the tightening of epidemic prevention and control measures in March may dampen overall traffic flow. We expect the company's toll revenue to grow by 6.0% in 2022 compared with the same period last year. In January 2022, long Lilong Company absorbed and merged Jiaxing Company. We expect Lilong's unused tax losses to be used in 2022-2023, which is expected to improve overall profitability.
Risk tips: 1) the growth rate of traffic flow is lower than we expected; 2) the trading volume of China's A-share market is lower than we expected; and 3) unexpected toll preferential policies.