The epidemic affected the traffic flow, and the reported performance was lower than expected.
In the first half of the year, the company recorded revenue of 1.616 billion yuan (down 11.8% from the same period last year), net profit of 295 million yuan (down 37% from the same period last year), and net profit lower than Huatai expected (428 million yuan). The decline in performance is mainly due to travel restrictions caused by the epidemic and rising operating costs. The company plans to pay an interim dividend of HK $0.10 per share (down 50% from a year earlier), with a dividend yield of 48.8%. Taking into account the drag on the epidemic and rising costs, we have lowered our annual net profit forecast for 2022-23-24 by 2711 per cent to RMB9233,932 million. Taking into account the downward revision of the EPS forecast in 2022 and the depreciation of the renminbi against the Hong Kong dollar, we lowered our target price by 31% to HK $5.00, still based on 10x 2022e PE. Our target PE multiple is 10% higher than the company's 2016-2019 average (9x), mainly considering that the issuance of a public REIT (at the end of 2021) will help improve the company's long-term growth potential. We expect the annual dividend yield on 2022-23-24 to be 6.4%, 8.8%, 8.3%, still more attractive than the historical average (6.1%). Maintain "buy".
1H22 toll revenue has hit bottom, and 2H22 is expected to pick up.
In the first half of the year, Yuexiu's toll income was repeatedly hit by the epidemic, but it was slightly better than the national level as a whole. Its income from deducting non-tolls (excluding the Han-Xiao highway) fell 7.4% in the first half of the year compared with the same period last year, while highway traffic volume across the country fell 13% in the same period. In terms of core road production, the toll income in the North second Ring Road of Guangzhou decreased by 10.3% compared with the same period last year, mainly due to the outbreak of COVID-19 in the Dawan area from March to April. The toll revenue of the four holding roads and bridges in Hubei fell 9.3% compared with the same period last year. In the context of the epidemic, the decline in passenger volume exceeded the freight volume, resulting in a relatively large decline in toll income of Humen Bridge and Shantou Bay Bridge respectively by 13,18% in the first half of the year compared with the same period last year. With the relaxation of travel controls in June, the company's June toll revenue increased by about 3% compared with the same period last year, and increased by about 4% month-on-month. We expect toll revenue to continue to recover in the second half of the year.
Amortization cost increases, financial cost decreases
Although 1H22 toll revenue fell 11.8 per cent year-on-year, operating costs rose 5.3 per cent year-on-year, resulting in a 21.9 per cent year-on-year decline in gross profit. In the first half of the year, amortization costs / staff costs / operating expenses / maintenance expenses accounted for 77% of the operating costs of Yuexiu Holdings project, accounting for 77% of the operating costs of Yuexiu Holdings project, representing an increase of 2.8%, 8.7%, 14.8% and 16.8% respectively over the same period last year. The company's amortization method is based on forecast traffic (up about 2.8% year-on-year) rather than actual traffic (down about 7.4% year-on-year). Under this method of calculation, the decline of gross profit accelerated. The company's EBITDA fell only 14.3% in the first half compared with the same period a year earlier. Yuexiu's financial cost fell 12.6% from a year earlier, mainly due to a 0.23% year-on-year drop in the comprehensive interest-bearing debt interest rate in the first half of the year to 3.78%, as well as debt portfolio optimization.
Risk tips: economic downturn, the impact of the epidemic is greater than we expected, road network diversion and unexpected toll reduction.