Investment logic

Domestic trade coal imports instead of driving up coastal dry bulk transport demand, the potential policy flexibility is huge: narrowing the price difference between internal and external coal stimulates Southern Power to purchase a large number of domestic trade coal so as to promote the growth rate of coastal dry bulk transport demand. The new ship-breaking subsidy policy is conducive to the accelerated withdrawal of coastal transport capacity in the medium term. We expect the growth difference between coastal supply and demand to be 3% in 14 years, freight rates will rise by about 3%, and capacity interest rates will rise to 73% to 78%. After 15 years, the lag effect of transport capacity withdrawal will be fully reflected. It is expected that the 16-year gap between supply and demand growth will reach 5% per year, and capacity utilization will further pick up. The "Seventeen articles on rescuing the City from Coal" and the "interim measures for Coal quality Management (draft for soliciting opinions)", which are under consideration in Shanxi Province, will boost the demand for dry and bulk transport along the coast by 10% once they are landed, with great flexibility.

With the support of Zheneng, the gross profit margin of the company's capacity utilization is rising rapidly, and there is room for future cooperation: after Zheneng Group became the actual controller of the company, the company became a state-owned local shipping enterprise with the background of shippers. The group promised to build the company into the only platform for its coastal coal transportation. In the past 13 years, the company's transport volume and revenue of carrying Zheneng coal increased by 24%. As a result, the overall capacity utilization rate of the industry has slightly declined, but it has rebounded by 7%. The gross profit margin has also risen sharply, and the main shipping industry has made a profit increase of 124 million compared with the same period last year. As there is still room for improvement of 3 million tons under Zhejiang Neng's COA contract, we expect that the company's capacity utilization will continue to rise by more than 5% in 14 years.

The Mingzhou highway may be diverted by the "outer ring highway" in the future, but the potential for net asset revaluation is great: although there is great downward pressure on the economy of Zhejiang and Ningbo at present, considering that the regional car ownership will maintain double-digit growth, the container and cargo throughput of Ningbo-Zhoushan Port will increase steadily, and the diversion of the Jiashao River Bridge is slight. We expect the company's traffic volume to grow at a compound growth rate of 5% and 8% in the next three years. It is estimated that Mingzhou Expressway will take about 5 years to gradually break even. In the long run, the newly planned "Outer Ring Expressway" in the newly issued "Ningbo Expressway Network Planning (2013mur2030)" will cause great diversion to Mingzhou Expressway, and there is some uncertainty about the long-term profit of the company's high-speed business, but due to the increase in material labor and other costs in recent years, the company has great potential for expressway equity revaluation, and it is expected that the revaluation will significantly increase the net assets per share.

Investment suggestion

We believe that the coastal dry and bulk transport market bottomed out in the medium term, the company will be supported by Zhejiang Energy Group, high-speed business will continue to reduce losses, the company's performance inflection point appears.

Valuation

I estimate that the company's EPS for 2014-2016 will be 0.037 yuan, 0.115 yuan and 0.16 yuan, respectively, and the corresponding Pamp B will be 1.4X, 1.32X and 1.3X, respectively, with an investment rating of "overweight".

Risk

Macroeconomic decline accelerates and fuel prices soar