Main points of the report

Event description

We track and cover the traffic of the five continents.

Event comment

After twists and turns, we will forge ahead and return to the main business of the highway. Wuzhou transportation is mainly engaged in highway toll collection, logistics trade and real estate development. The core assets of the company are Tanbai Expressway and Luochen Expressway. Due to the massive development of trading business and mining industry from 2012 to 2014, the profit quality is affected while the income is inflated. Since the new leadership of the company took office in April 2015, it has put forward the development strategy of "returning to the main business of the highway and restoring the financing function". At present, as the company withdraws from mining and stops doing bulk trade, although revenue has fallen from more than 6 billion to about 2 billion, the profit contributed by the company's main road business is steadily rising.

Core road products: Tanbai Road and Cenluo Road. Wuzhou Traffic's core highway assets are: Tanbai Road and Cenluo Road. In 2015, the two highways contributed 45% of the company's traffic and 87% of the toll revenue. 1) Tanbai Road: the southwest border road, the core income and profit source. With a total length of 187.82 km, connecting Nanning (Tanluo) and Baise in Guangxi, traffic flow and tolls account for 25% and 71% of the total highway business. We expect Tan Bailu to maintain a reasonable growth rate of 5% and 10% in the next two years, contributing about 300 million in net profit each year. 2) Cenluo Road: connecting Guangxi and Guangdong, the secondary source of profit. With a total length of 39.57 kilometers, it is one of the main highways connecting Guangxi and Guangdong, with significant geographical advantages. Traffic flow and tolls account for 20% and 16% of the total highway business. We estimate that in the next few years, Cenluo Expressway, as one of the main lines connecting Guangxi and Guangdong provinces, will continue to contribute more than 55 million of the annual net profit.

Performance risk was released substantially in 2015, and the pace of reversing losses was firm. In 2015, the company completed the transfer of shares in three loss-making companies, and the net profit impact of these assets on the company in 2015 was about-260 million. At the same time, the company set aside 428 million of the provision for asset impairment in 2015, and made a normal depreciation adjustment to Tanbai Expressway in April 2016. after getting rid of the historical burden, the company is expected to make a substantial turnaround in 2016.

Carry on the past and forge ahead into the future, change and seek the new. The future focus of Wuzhou Traffic is as follows: 1) the new management will fully implement the company's development strategy of "returning to the main business of the highway and restoring the financing function". The future net profit will gradually return to more than 350 million; 2) the increase in the shares of the major shareholder Exchange Group has given the company a clear margin of safety (the increase in the price of 4.82 yuan in May this year has not yet been completed) 3) the establishment of cross-border e-commerce platform, the implementation of the new Henderson Hairun project; 4) the approval of Guangxi Free Trade Zone to promote the development of the company's logistics business. We conservatively estimate that the company's EPS from 2016 to 2018 will be 0.23,0.38 and 0.44 yuan respectively, corresponding to 24 times, 15 times and 13 times of PE, respectively.