1H22's profit fell short of expectations; the epidemic and exchange losses dragged down the net profit of Shenzhen Express, with 1H22 revenue of 4.094 billion yuan (down 3 per cent year-on-year) and return-to-home net profit of 849 million yuan (down 30 per cent year-on-year). The company's net profit is 15% lower than our forecast (RMB 1 billion). We believe that the decline in net profit is mainly due to 1) the impact of travel restrictions related to the epidemic from March to May, and 2) a large exchange loss of 248 million yuan. Taking into account the one-time benefit of the company's capital reduction on United Land, we have raised our 2022 net profit forecast by 3.9% to 2.843 billion yuan. In view of the fact that the endogenous growth rate of traffic flow under the epidemic may decline, we will lower the net profit forecast for 2023 by 2.1% to 2.894 billion / 3.013 billion yuan in 2024. Based on the segment valuation method, we maintain a buy rating with a target price of RMB10.77 (previous value: RMB11.3) for 600548 CH and a target price of HK $10.50 (previous value: HK $11.6) for 548 HK.
The epidemic affects toll income from March to May.
1H22 toll revenue of Shenzhen Expressway fell 13.4 per cent to 2.41 billion yuan (59 per cent of total revenue), while gross profit of toll roads fell 18 per cent to 1.15 billion yuan (72 per cent of total gross profit). From March to May, Guangdong-Hong Kong-Macau Greater Bay Area's COVID-19 epidemic seriously affected the company's highway traffic flow. From January to February, the company's parent toll revenue fell 4% from a year earlier, but a further decline of 29% in March / April / May turned to a year-on-year increase of 6% in June. The toll revenue of 1H22 on the outer ring highway increased by 5.4% compared with the same period last year, mainly because the second phase of the road was opened to traffic since 2022. In terms of other core road products of the company, the 1H22 toll income of Ji he Dong / Chi he Xi / Qinglian / Shuiguan Expressway decreased by 14.5% compared with the same period last year. 17.6%, 31.3%, 13.0%.
1H22 Clean Energy Business shows resilience
As a result of the expansion of the clean energy business, the company's environmental revenue increased 28 per cent to 836 million yuan (20 per cent of total revenue), while sector gross profit increased 28 per cent to 270 million yuan (17 per cent of total gross profit).
As 2H21 acquired two wind farms, 1H22 clean energy revenue rose 10.5 per cent to 383 million yuan and gross profit increased 20 per cent to 234 million yuan.
High dividend yield is still attractive
Due to the depreciation of RMB against the US dollar, the company lost 248 million yuan on foreign currency liabilities of 1H22.
The company reduced its capital in 3Q22, and according to its announcement on June 22, the company may receive an one-time income of about 691 million yuan. In view of the above factors, and based on the company's promised dividend yield of 55%, we estimate that the dividend yield of 600548 CH in 2024 will be 7.8%, 8.0% and 10.7%, 10.9% and 11.3% respectively.
Risk hint: the growth rate of traffic flow is lower than expected, and the progress of environmental protection projects and road property acquisitions is not as expected.