1H22 net profit affected by epidemic situation and stock market decline
Zhejiang's Shanghai, Hangzhou and Ningbo announced on August 24 that the net profit of 1H22 was 1.586 billion yuan (down 36.9% from the same period last year), 21% lower than we expected. 1Q22/2Q22 net profit fell 11.8% to 61.0% compared with the same period last year, mainly due to the outbreak in the Yangtze River Delta region in March-June and the decline in the securities market in January-April. Taking into account the impact of the epidemic, we lowered the 2022-2023-pound net profit forecast for 2024-20.5-5.0-2.1% to 3.79 billion / 4.967 billion / 5.277 billion yuan (previous value: 4.766 billion / 5.228 billion / 5388m). We lowered the target price by 8.0% to HK $7.98 (previous value: HK $8.67), which is still based on the segment valuation model, of which the toll road WACC is 7.63%. We expect a dividend yield of 7.0% 7.4% 7.8% in 2024 for 2022 swap 2023. Despite the short-term disadvantages of the epidemic, its dividend yield remains attractive. Maintain "buy".
Toll income from March to June is affected by the epidemic in the Yangtze River Delta.
The company's first-half profit from the toll road business (including minority shareholders' profits and losses) fell 49 per cent from a year earlier to 929 million yuan, accounting for 45 per cent of the total profit. The outbreak in the Yangtze River Delta has seriously affected highway traffic from March to June. The company's recurrent toll revenue increased 4.0% year-on-year in 2M22, but fell by 20% in March / April / May / June compared with the same period last year. Road network changes and ETC preferential policies also affect toll revenue. Hangzhou-Shaotai Expressway has been fully opened to traffic since February 2022, which has a certain diversion impact on the traffic flow of the company's core sections (Shaoxing section of Hangzhou-Ningbo Expressway and Shangsan Expressway). Since January 2022, Zhajiasu Expressway has implemented a 15% ETC toll discount for trucks in Zhejiang Province, which also has a negative impact on tolls.
2Q22 rebounded after the net profit of securities business 1Q22 hit bottom
1H22's securities business profits (including minority shareholders' profits and losses) account for about 36% of the total profits. The 1Q22/2Q22 net profit of the securities business decreased by 23% and 12% compared with the same period last year, mainly due to the sharp adjustment of the A stock market from January to April, which greatly affected the company's securities investment business and investment banking business. The company's 1Q22 securities investment loss of 18.9 million yuan, 2Q22 turned a profit and recorded an investment income of 390 million yuan.
The Shanghai Composite Index fell 10.6% in January-April and rose 4.5% in May-June.
1H22 banking earnings show resilience
The company holds a 4.85% stake in 601825 CH, and 1H22 Shanghai Nong Commercial Bank contributes about 18% of the company's total net profit. Shanghai Agricultural Commercial Bank's 1Q22/2Q22 net profit increased by 29% compared with the same period last year. Although Shanghai Agricultural Commercial Bank's business is mainly based in Shanghai, its performance remains resilient in the context of the epidemic and strict travel control.
Risk tips: 1) the growth rate of traffic flow is slower than we expected; 2) the trading volume of A stock market is lower than we expected; 3) the fee standard is reduced beyond expectation.