Affected by the impairment of environmental assets, the net profit of the 22-year report was slightly lower than expected, and Shenzhen Express released its 2022 annual report: total revenue of 9.37 billion yuan (-14% YoY), net profit of the mother of the mother of 2.01 billion yuan (-23% YoY), and net profit of 1.23 billion yuan after deducting non-net profit (-47% YoY). Return to the mother's net profit was slightly lower than our expectations ($2.16 billion). The main reasons for the decline in profits are: 1) declining willingness to travel due to the pandemic; 2) loss of foreign currency loans and exchange; 3) impairment of environmental assets. The company confirmed disposal revenue (after tax) of 691 million yuan on the capital reduction of United Land, bridging part of the profit gap. Considering the rapid increase in amortization amounts in Qinglian and the slow progress of environmental protection business, we lowered the 2023/2024 net profit forecast to RMB 2,67/2.96 billion by 3/3%, and introduced the 2025 forecast of RMB 3.03 billion. Based on the segmented valuation method, we gave 600548CH a target price of RMB 11.38 (previous value: RMB 11.93) and a target price of HK$10.06 for 548 HK (previous value: HK$10.29). The company plans to distribute a 2022 dividend of 0.462 yuan/share, with a dividend ratio of 5.0%/7.2% for A-shares/Hong Kong stocks (dividend rate of 55%). Maintain a “buy” rating.

The epidemic, road network diversion, and truck exemptions dragged down the company's toll road revenue in 2022 by 16% year on year to 4.98 billion yuan (53% of total revenue), mainly due to: 1) the decline in road traffic demand due to the epidemic, and road network traffic in the Guangdong-Hong Kong-Macao Greater Bay Area fell 7% year-on-year in 2022 (Ministry of Transport Planning Institute); 2) Q4 truck toll reduction in 2022 was 10%; 3) Guanglian Expressway opened to traffic at the end of 2021, which had a diversion impact on the Qinglian Expressway (accounting for 12% of toll fees in '22). Since October 2022, the company has increased the unit amortization amount of the Qinglian Expressway by 31%, and the annualized impact on the net profit of the mother is about 0.4 billion yuan. In addition, other important road network changes include: 1) Outer Ring Road Phase II opened to traffic in early 2022, which had a positive impact on overall traffic on the Outer Ring Expressway (accounting for 19% of the 22-year toll); 2) the Wuhuang Expressway (accounting for 7% of the toll in '22) expired in December 2022.

Wind power generation profits have increased, but the fan manufacturing and solid waste business is not ideal. The company's wind power generation revenue in '22 increased 19% year-on-year to 692 million yuan (7% of total revenue); profits from stock projects were stable, and business growth came from new acquisitions in 2021. Influenced by industry technology iteration and market competition, Nanjing Wind Power (which specializes in fan manufacturing) recorded a net loss of 233 million yuan. Lande Environmental (which specializes in food waste) recorded a net loss of 136 million yuan in '22. Mainly affected by the external environment, the amount of food waste collected and transported declined, and the progress of projects under construction was lagging behind. The company confirmed impairment losses of $247 million relating to the above business. Due to exchange rate fluctuations, the company's foreign currency debt exchange losses reached 318 million yuan in 2022.

The recovery of travel is still in progress. Q1 in '23 is expected to become a profit inflection point. Since the Spring Festival travel season, there has been a strong recovery in travel. On the 40th day of the Spring Festival travel season this year, highway traffic in Guangdong Province increased 17% year on year. Among them, traffic in the Guangdong-Hong Kong-Macao Greater Bay Area increased 16% year on year (Guangdong Provincial Transportation Department). After adjusting the impact of free days, we estimate that the company's average daily toll revenue for equity increased by about 7.5% year-on-year in January (comparable caliber, excluding the expired Wuhuang Expressway). We expect Q23 to be a profit inflection point.

Risk warning: Traffic growth was lower than expected, environmental protection projects and road property acquisitions fell short of expectations, capital expenditure was higher than expected, and fees were lowered.