1H22 performance is in line with our expectations
The company announced 1H22 results: revenue of 1.62 billion yuan, down 11.8% from the same period last year; net profit of 300 million yuan, corresponding to earnings per share of 0.18 yuan, down 36.9% from the same period last year, which is basically in line with our expectations. The company's 1H22 dividend is HK $0.10 per share, with a dividend ratio of 48.8%. The amount and proportion of dividends are lower than those of the same period last year (1H21 dividend of HK $0.20 per share, dividend ratio of 59.5%).
Trend of development
Traffic flow affected by the epidemic and diversion declined year-on-year, and the performance was under pressure. 1H22 realized 1.57 billion yuan in toll income, down 13.0% from the same period last year, and the traffic flow of participating roads declined. Among them, the main road production in Guangzhou, the North second Ring Road, was affected by the epidemic in Shenzhen and the diversion of Guangfo-Zhao Expressway in the first half of the year. 1H22 toll income and traffic volume fell 10.3% and 8.2% respectively compared with the same period last year. In terms of road production in central China, affected by the epidemic in Hubei, the traffic volume of Han-E Expressway and Da Guangnan Expressway fell by 26.6% and 23.9% respectively compared with the same period last year, and toll revenue dropped by 23.3% and 16.1% respectively compared with the same period last year. In addition, Hanxiao Expressway spin-off REIT listing, affecting the toll income of about 110 million yuan.
Traffic volume recovers month by month and is expected to continue to improve in the second half of the year. From a monthly point of view, most of the company's road production has improved month-on-month since April, with a year-on-year decline narrowing. Among them, in June, the average daily traffic flow and toll income in the North second Ring Road of Guangzhou increased by 17.5% and 10.0% compared with the same period last year. We believe that with the normal development of epidemic prevention and control, the company's road production traffic is expected to continue to recover.
Long-term optimistic about the steady development of the company's main business:
1) the reconstruction and expansion of the North second Ring Road may bring performance contribution: the high-speed traffic flow of the North second Ring Road in Guangzhou is the most important toll road production of the company. At present, the traffic volume is saturated, and the company has submitted a feasibility report on reconstruction and expansion. We expect that the completion of reconstruction and expansion will bring greater revenue and profit contribution to the company. 2) using the incubation platform to anchor the acquisition opportunities of high-quality road products: the company plans to adopt the mode of "parent company incubation-listed company purchase" to quickly anchor high-quality assets. According to the company announcement, the company is conducting a study on Lanwei high-speed acquisition opportunities. If it can be combined, it will effectively supplement the company's highway assets. 3) optimize the asset portfolio with the help of the REITs platform: last year, the company successfully split the Hanxiao Expressway REIT to go public, opened the closed loop of "investment and financing management withdrawal", invigorated the existing assets, and reduced the debt ratio, we believe that the company is expected to use the recovered funds to reinvest in the main business and further optimize the company's asset portfolio.
Profit forecast and valuation
Taking into account the negative impact of the epidemic on traffic flow, we reduced the profit in 2022 by 13.6% to 790 million yuan, basically maintaining the profit in 2023. The current share price corresponds to a price-to-earnings ratio of 7.8 times 2023 / 5.8 times earnings. Maintain the outperform industry rating, lowering the target price by 13.6% to HK $5.19, corresponding to 9.4 times 2022 price-to-earnings ratio and 7.1 times 2023 price-to-earnings ratio, which is 21.0% upside from the current share price.
Risk
The epidemic is repeated, and the progress of the acquisition is not as expected.