First, the growth of traffic leads to the rapid growth of toll revenue.
The development of the company's existing road products is good. The Zhengzhou-Luoyang Expressway and the Zhengzhou Yellow River Highway Bridge owned by the company all belong to the important sections of the national north-south traffic artery, Beijing-Hong Kong-Macao Expressway. The cross-provincial transit vehicles of some types of vehicles have reached more than half, benefiting from domestic economic growth, and the traffic flow has been steadily increased. Zheng Yao Expressway is an important fast channel for energy and tourism in Henan Province. Since it was opened to traffic at the end of 2007, the traffic volume has increased rapidly, which is a bright spot for the growth of the company's main business. The growth rate of the company's traffic volume in the first half of the year was 14%, which led to a rapid growth of 15% in its toll income in the first half of the year. Among them, the toll income of Zhengzhou-Gan Expressway, Li-stationed Expressway and Zhengzhou Yellow River Bridge increased by 8%, 14% and 18% respectively compared with the same period last year. The toll growth rate of Zheng-Yao Expressway is as high as 50% year on year, except for traffic flow growth and vehicle structure adjustment. Zheng Yao Expressway in the fourth quarter of 2009 second split income adjustment of 10.7616 million yuan into its April 2010 toll income is also one of the reasons.
Second, cost control has been effective, with a 9% increase in gross profit margin.
The company's cost control is relatively satisfactory. During the reporting period, the company vigorously implemented energy conservation and consumption reduction measures and strictly controlled costs and expenses. While operating income increased by 16%, operating costs decreased by 11%. As a result, the gross profit margin rose to 70% from 61% last year, which has become the main reason for profit growth. On a quarterly basis, gross profit margin in the second quarter rose 4 percentage points from the first quarter, the highest level since the second quarter of 2007.
Third, projects under construction bring capital pressure to the company, which will have an impact on the performance of the year after next year.
At present, the company has six projects under construction, such as the fourth expansion of Zheng-Luo Expressway, the Zhengxin Yellow River Bridge, the Shangqiu Section of Yonghao Expressway, the four-expansion Section of Zhi resident Expressway, the Zhengzhou-Kaifeng section of Zhengzhou-Minquan Expressway, and the Lianhuo Expressway-Yongdeng Expressway Section of Jining-Qimen Expression. the total investment is 15.511 billion yuan, resulting in the company's asset-liability ratio rising from 60% in 2006 to 74.46% at present, and the financial expense rate is as high as 24.39%. It has become an important factor restricting the profitability of the company. On the other hand, three projects under construction, namely, the fourth expansion of Zheng-Luo Expressway, the Zhengxin Yellow River Bridge and the Shangqiu section of Yonghao Expressway, were completed and opened to traffic at the end of December, October and November, respectively, and the depreciation and financial expenses resulting from capitalization will offset the 2011 performance.
Fourth, diversified investment forms a strong supplement to performance.
The company is involved in many businesses such as real estate, venture capital and trust, among which the medium-term profit of Zhongyuan Trust made the company's investment income in the first half of the year increase by 9.0474 million yuan, or 44.21%, over the previous period. Although Beijing Bingyuan Venture Capital Company, a wholly owned subsidiary of the company, has lost money in the medium term, the initial application of Dalian Yishida New Energy Development Co., Ltd. to register on the gem has been approved, if it can be successfully listed this year, it will bring huge profits to the company. The Tianjiahuating real estate project and the Xuchang high-end residential project controlled by the company are expected to settle income in 2012, of which the Tianjiahuating project has a total construction area of about 300000 square meters and is composed of 16 high-rise residential buildings with 18 to 33 storeys. The cost of acquiring land is only 3.042 million yuan per mu, and the income of the project is considerable.
Fifth, we give the company a "neutral" rating for the time being and recommend appropriate attention.
The late performance of the company is difficult to achieve high growth due to the opening of new roads, and the substantial contribution of diversified investment to profits remains to be reflected, but the expansion of road production promotes the long-term development of the company, and with the gradual improvement of the road network in Henan Province, the traffic flow of new road production will achieve rapid growth, and profitability is expected to improve steadily. We estimate that the company's EPS in 2010-2012 will be 0.30,0.24,0.25 yuan respectively, corresponding to 13 times, 16 times and 15 times PE respectively. In view of the decline in the company's performance in 2011, we temporarily give the company a "neutral" rating, but we are optimistic about the company's long-term development prospects.