Key points of investment
The road transport industry accounts for half: the company's business is mainly travel services (including road passenger transportation, service area management, convenience stores, etc.), resource development (Taiping interchange, real estate development, advertising, etc.), and modern logistics (transportation of infrastructure materials, etc.). Total revenue in 2016 was 7.319 billion yuan, and gross profit reached 1,279 million yuan. The three major businesses accounted for 72%, 15%, and 13% respectively, of which road passenger transport in travel services accounted for about 52%.
Extended acquisitions+endogenous growth helped the road transport industry, and service areas and convenience stores continued to expand: revenue from travel services in 2016 was 4,015 billion yuan, taking into account government subsidies, gross profit of 1.01 billion yuan, an increase of 7% over the previous year. Among them, road transport, service areas, and convenience stores accounted for 72%, 11%, and 15% respectively. In the past two years, the company has continuously increased the revenue scale of the road transport industry through acquisitions, while at the same time increasing gross profit margin and enhancing profitability through intensive management. Furthermore, the company continues to increase the number of service areas and open additional convenience stores. While increasing its performance, it has also become an important platform for the company's O2O business.
Taiping Interchange provides steady income, and land development is a new growth point: in 2016, Taiping Interchange contributed 200 million yuan in revenue and 169 million yuan in gross profit. The growth rate has been steady over the past few years. The company is promoting the development of its own land, including the Yangxi Railway Station commercial and residential project and the Airport Road commercial project, which will become a new growth point in the future.
Modern logistics is expected to stabilize: infrastructure projects in Guangdong Province remained high during the “13th Five-Year Plan” period. It is expected that the company will rely on parent companies to seek projects within the group and vigorously pursue projects outside the group. This sector is expected to stabilize.
Valuation and investment advice: Based on our analysis of various business segments, we expect the company's EPS to be $0.52, 0.54, and 0.58 in 2017-2019. Compared with the current stock price, the corresponding PE is 9.73X, 9.4X, and 8.75X, covering the “increase in holdings” rating for the first time, with a target price of HK$6.5.
Risk warning: Road transport is diverted by high-speed rail, logistics volume is declining, land development progress falls short of expectations, etc.