Net profit in '22 was basically in line with expectations, and the dividend rate reached 63%
Wantong Expressway released its 2022 annual report: total revenue of 5.21 billion yuan (year-on-year increase of 33%); Guimu's net profit was 1.45 billion yuan (down 4.6% year on year), in line with our expectations (15.01 billion yuan). The decline in net profit is mainly due to: 1) the decline in willingness to travel due to the pandemic; 2) costs are relatively rigid. There has been a strong recovery from self-driving travel during the Spring Festival travel season, and Q1 is expected to become a profit inflection point. The company plans to distribute a 2022 dividend of 0.55 yuan/share (unchanged from year to year), with a dividend rate of 63% (higher than the promised dividend rate of 60% from 2021-2023), with a dividend ratio of 6.5/8.3% for A-shares/H-shares. Considering the increase in the expense category in the 22-year report, we adjusted the company's net profit forecast for 2023/2024 to 1,79.97 billion yuan (previous value of 1,88/1.98 billion yuan), and introduced the 2025 forecast of 1.84 billion yuan. We used the DDM valuation method to give the target price of 600012CH/995HK RMB 9.23/8.95 HKD (previous value: RMB 9.31/ HK$9.20), and calculated the discount rate Ke = 8.9/ 10.3% (previous value 8.8/ 10.3%) based on CAPM. Maintain a “buy” rating.
The external environment combined with truck exemptions dragged down 22-year tolls
The company's toll road revenue fell 3.8% year-on-year in '22, mainly due to: 1) the decline in road traffic demand due to the pandemic; 2) the Q4 truck toll reduction in '22 by 10%. By project, revenue from the Hening Expressway fell 0.3% year on year, benefiting from the opening of the entire Chuhe Bridge line (end of June 2022); Gaojie Expressway revenue increased 3.7% year on year, related to local road vehicles switching to highways; revenue from the Xuanguang/Guangci Expressway fell 19.6/16.0% year on year, affected by the diversion of surrounding road networks; revenue from the Anqing Bridge fell 4.1% year on year, affected by construction of surrounding road sections. Together, these projects account for 82% of toll road revenue. The company's share of truck traffic increased in '22, mainly because bus traffic was more affected by the external environment. On a quarterly basis, the company's Q1/Q2/Q3/Q4 toll revenue in '22 fell 0/10/1/6% year-on-year.
22-year expenses are relatively rigid
The company's toll road operating costs fell 2.4% year-on-year in '22. Since the company used the annual averaging method to amortize road properties, depreciation and amortization expenses (accounting for 62% of toll road operating costs) increased 1.6% year-on-year; while most companies in the industry used actual traffic for amortization, amortization expenses decreased simultaneously when traffic fell. In summary, the company's gross profit/operating cash flow in '22 fell 3.8/ 7.6% year on year.
There has been a strong recovery in travel, and Q1 is expected to become a profit inflection point
Highway traffic has recovered strongly during the Spring Festival travel season. In the 40 days of the Spring Festival travel season (1/7-2/15), highway exit traffic in Anhui Province increased 13.5% over the same period in 2022 and 27.1% over the same period in 2019; among them, buses/trucks increased 15.4/3.2% year-on-year (Anhui Provincial Transportation Department). The company's road network showed positive changes overall. Benefiting from the opening of the Ningxuan Hangzhou-Jiangsu section to traffic in September '22, the 22 Q4 toll of the Ning-Xuanhang Expressway increased 21% year-on-year; considering the opening of the Zhejiang section to traffic in December '22, project revenue is expected to continue to rise. The Heliuye Expressway, which is connected to the Hening Expressway, was remodeled and expanded at the end of '22, which may boost traffic on the Hening Expressway.
Risk warning: willingness to travel has declined, road network changes have exceeded expectations, capital expenditure has exceeded expectations, and rates have been lowered.