Shentong Metro released its 2016 annual report. In 2016, the company achieved an operating income of 756 million yuan (- 2.3%), a gross profit margin of 6.6% (- 3.2pct), a net profit of 52 million yuan (- 24.7%) belonging to the parent company and an EPS of 0.11 yuan. The company plans to pay a cash dividend of 0.35 yuan (including tax) for every 10 shares.
The drop in passenger flow superimposed by a drop in average ticket prices led to a drop in revenue. In 2016, the company achieved operating income of 756 million yuan, down 2.3% from the same period last year. The main reason is that with the further expansion of the Shanghai rail transit network, the transfer options are more diversified, the average distance of Line 1 operated by the company is shortened, and the average ticket price is reduced by 3.3%. Coupled with the 8.2% drop in passenger flow on this line, the company's ticketing revenue has decreased. Subway operating costs rose 1.93%, eventually causing the company's gross profit margin to fall 3.2 percentage points to 6.6%.
The rapid development of financial leasing business is difficult to break the bottleneck of income growth. At present, more than 90% of the company's revenue comes from the operation of Metro Line 1. Due to the expansion of Shanghai rail network, the average ride distance of Line 1 is shortened, and the growth of Metro revenue is limited. Although the company's financial leasing business is in a state of rapid development in 2016, revenue rose 13.22% year-on-year to 52 million yuan, but due to its small scale and limited promotion, the company's revenue is still facing growth bottlenecks.
Typical "large groups, small companies", asset injection is expected. Shentong Metro Group, the company's shareholder, currently operates a total of 15 subway lines, while the subway line assets injected into the company are only Line 1, which is a typical "big group, small company". According to the disclosure information of the company announcement, the company intends to issue shares to purchase assets with Shentong Metro Group, the largest shareholder, and the underlying assets belong to the property development assets built above the rail transit. We believe that after the completion of this transaction, the company's business structure will be improved, so as to enhance the company's profitability.
Investment suggestion: regardless of the impact of asset restructuring, we expect the company's EPS from 2017 to 2018 to be 0.12 yuan and 0.13 yuan respectively, with a six-month target price of 16.8 yuan.
Risk hint: the process of asset restructuring is not as expected.
