Summary of the report:
Event: Shentong Metro Co., Ltd. released its annual report for 2016. the company achieved operating income of 755.8904 million yuan, down 2.35% from the same period last year, and the net profit of shareholders belonging to listed companies was 51.9422 million yuan, down 24.68% from the same period last year, corresponding to an EPS of 0.109 yuan, down 24.68% from the same period last year.
Comments:
A slight drop in the company's average ticket price resulted in a slight drop in operating revenue compared with the same period last year. The total number of passengers on Metro Line 1 in the whole year was 349.58 million, down 0.1% from last year, and the operation was stable. The average fare was 2.07 yuan, down 3.3% from the same period last year. This is mainly due to the greater diversity of rail transfer routes in Shanghai, which shortens the average distance between passengers on Line 1. The company's operating income reached 756 million yuan in 2016, down 2.35% from the same period last year. Among them, the revenue of the main business Metro Line 1 reached 704 million yuan, accounting for 93% of the revenue, down 3.36% from the same period last year.
The company's net profit fell, mainly due to a continued decline in gross profit margin and a drop in government subsidies.
The company's net profit fell 24.68% in 2016 compared with the same period last year, on the one hand, as the company's gross profit margin continued to decline in recent years to 6.56% from 9.72% in 2015. The sharp decline in the company's gross profit margin in 2016 is mainly due to a year-on-year increase in operating costs since 2015, mainly due to the continued rise in employee salaries. On the other hand, the company's net profit declined due to a drop in government subsidies. Shentong Metro received 47.5755 million yuan in government subsidies in 2016, down 18.76 percent from the same period last year. Excluding the decline in government subsidies, net profit fell 8.73 percent from the same period last year.
The company develops financial leasing business and maintains a high level of financial expenses. Since July 2014, the company has been identified as the 12th batch of domestic financial leasing pilot enterprises, obtaining the qualification of financial leasing business, so as to develop financial leasing business. The company signed sales and leaseback project contracts with a number of companies in 2014 and 2015, making the company's financial expenses reach 35.89 million yuan in 2015, an increase of 171.48% compared with the same period last year. The company's financial expenses in 2016 were 31.71 million yuan.
Investment suggestion: considering the factors of local state-owned enterprise reform in Shanghai, based on the stable operation flow of Shentong Metro Line 1, we estimate that the company's EPS from 2017 to 2019 will be 0.15,0.19,0.20 yuan respectively, corresponding to 96x/78x/75x, respectively.
Risk hint: the reform of state-owned enterprises in Shanghai is lower than expected.
