The loss is in line with the forecast, and the epidemic is a drag on the performance.
In the first half of the year, Guangzhou-Shenzhen Railway had a revenue of 9.49 billion yuan (down 1.8 per cent from a year earlier) and a net loss of 765 million yuan (1H21 net profit was 4.28 million yuan), in line with the company's forecast for 7ame15 results. On a quarterly basis, 1Q22/2Q22 's net loss reached 398 million / 367 million yuan.
We attribute it to: 1) COVID-19 epidemic led to a decline in passenger travel demand; 2) the cost is relatively rigid.
In view of the repeated impact of COVID-19 's epidemic on travel, we have lowered the net profit forecast for 2022 / + 567 million / + 648 million to-1.508 billion / + 483 million / + 643 million yuan in 2024.
We have lowered the price of the company's Amax H stock by 12.6% to RMB2.25 / HKD1.59, still based on 0.620 times / 0.385 times the 2022 forecast PB (1 standard deviation lower than the 2016-2021 average, reflecting the profit trough discount) and the current forecast of 2022E BPS 3.63 yuan.
/ Buy rating.
The epidemic situation is a serious drag on railway passenger transport
The 1H22 revenue of Guangzhou-Shenzhen intercity trains on the core line fell 27% year-on-year, mainly due to the outbreak of COVID-19 in the Dawan area from March to May and the implementation of strict containment measures, resulting in a sharp drop in passenger traffic. Although long-distance trains are also affected by the epidemic, with the opening of the Jiangxi-Shenzhen high-speed railway in December 2021, the company opened several new cross-line EMU trains, increasing long-distance train revenue by 27% compared with the same period last year. However, we believe that as the epidemic seriously affects passengers' willingness to travel over long distances, resulting in a shorter travel radius, the occupancy rate of long-distance trains may be under pressure, resulting in a large net loss for the company's 1H22 (1H21 is a small profit). The Guangzhou-Kowloon through train was still suspended in the first half of the year. From June to July, residents' travel gradually resumed. In July this year, the passenger volume of Guangzhou-Shenzhen intercity / long-distance trains has returned to 79% of that of the same period last year.
Railway freight transport is less affected by the epidemic.
Due to the outbreak and economic weakness, 1H22 freight shipments fell 15% year-on-year, resulting in a 17% year-on-year drop in freight revenue. Thanks to the smooth logistics policy and the fact that inland cities are less affected by the epidemic, the company's cargo delivery volume dropped slightly by 0.5% compared with the same period last year. Considering that the volume of goods is still resilient and the volume of passengers is poor, the company's road network liquidation revenue fell 10.9% compared with the same period last year.
Relative rigidity of cost
In the first half of the year, the company's operating expenses were 10.5 billion yuan (up 8.7% from the same period last year), mainly due to the increase in related costs caused by the increase in cross-line EMU trains, as well as the relative rigidity of most other expenses.
The company's equipment rental and service fees rose 19% year-on-year, wages and benefits in the main business rose 3.8% year-on-year, and the two costs together accounted for 76% of the main business costs. Taken together, the company's 1H22 gross loss / net loss reached 917 million / 765 million yuan, and the gross loss rate / net loss rate reached 9.7% / 8.1%, compared with 110 million / 4 million yuan in the same period last year. Looking forward to the second half of the year, due to the outbreak of the epidemic in Shenzhen in late August, 3Q22 profits may be affected, or take a turn for the better or appear after the epidemic is stable and travel resumes.
Risk hints: 1) the diversion of parallel railway lines increased; 2) the epidemic lasted for a long time.