Main points of investment

1. Focus on the main business development of toll roads.

1) clean up the trade business and focus on the main highway business. In 2016, the company's toll income was 1.05 billion yuan, accounting for 81.5%.

2) the core road production channel effect shows that the influence of high-speed railway shunt becomes weaker and returns to growth.

A) the core road production Tanbai Expressway and Cenluo Expressway account for 86% of the tolls, which are part of the trunk road Guangkun Expressway and the most convenient passage between Guangdong and Guangxi, respectively.

B) after the realization of the channel effect, the traffic flow of the core road production exceeds the evaluation value, adjusts the depreciation coefficient, and reduces the depreciation cost of the current year.

Both Tanbai and Cenluo expressways use the traffic flow method to depreciate, and the depreciation coefficient is approved every three years. The traffic flow after the channel effect exceeds the previous assessment, and the correlation coefficient was adjusted in April 2016 and March 2017 respectively. Among them, Tanbai Expressway was adjusted from 22.75 yuan per vehicle to 17.84 yuan per vehicle, reducing operating costs by 24.09 million yuan in 2016 and increasing net profit by 20.48 million yuan, while Cenluo Expressway was adjusted from 6.38 yuan per vehicle to 6.04 yuan per vehicle.

We estimate that Tanbai Expressway will continue to reduce depreciation costs by about 7 million (3 months and 14 days) in 2017, and Cenluo Expressway will reduce depreciation costs by 1 million yuan (9 months), totaling about 8 million yuan.

C) weakening under the influence of high-speed rail diversion.

Affected by the opening of the Nanning-Baise section of the Yunnan-Guizhou high-speed railway in 2016, revenue declined and returned to growth in 2017, with an estimated growth rate of about 10%.

two。 Benefit from the appreciation of the RMB.

1) background introduction of US dollar loan:

In 2005, the company's Tanbai Expressway Project had a loan from the Asian Development Bank (US $188 million, equivalent to 1.279 billion yuan), and there were still about 1.1 billion yuan outstanding by the end of 2016.

2) calculation of exchange impact:

It is estimated that for every 1 percentage point fluctuation of the RMB against the US dollar, the net profit is 11.17 million yuan, the exchange loss is 72 million in 2016, and the exchange gain is expected to be 30 million yuan in 2017.

The above factors have led to an increase of 50-70% in the company's mid-report.

3. Belt and Road Initiative's important strategic position to ASEAN.

The company's Wuzhou Tianmei cross-border e-commerce, Jinqiao International Agricultural products Market and Pingxiang Logistics Park can become a platform for China-ASEAN modern agriculture and logistics docking through the combination of online and offline.

4. There may be room for activation in the land reserve. At present, the company has a total undeveloped land reserve of 914000 square meters, of which residential and commercial service land is about 640,000 square meters, and the company's land price at that time totaled 1.054 billion yuan.

5. Profit forecast and investment advice: lower than the industry average valuation, for the first time covering the "recommended" rating 1) the valuation is lower than the industry average. It is estimated that the attributable net profit in 2017-19 is 3.76,4.36 and 520 million yuan respectively, and the EPS is 0.45,0.52 and 0.62 yuan respectively, corresponding to PE14.3, 12.3 and 10.3 times, which is lower than the industry average. If the market capitalization deducts the value of 1 billion yuan of land held by the company to be developed (excluding value-added), the corresponding 17-year valuation is only 11.6 times.

2) We think that the highway industry may be in a warming period of both fundamentals and policies.

3) for the first time to give a "recommended" rating. In view of the company's focus on its main business and its return to growth, it will benefit from Belt and Road Initiative's strategic promotion of ASEAN and the integrated development of cross-border e-commerce online and offline, giving it a "recommended" rating for the first time.

Catalyst: a substantial appreciation of the RMB, a substantial increase in traffic, the 14th China-ASEAN Expo will be held in Nanning in September, this year marks the 50th anniversary of the founding of ASEAN.

Risk hint: RMB depreciates sharply, economy declines sharply

Another reminder is that the company announced on April 29 that China Merchants Highway, the second largest shareholder, plans to reduce its holdings of no more than 25 million shares of the company within 9 months after 15 trading days from April 29 due to working capital requirements (accounting for 3% of the total share capital. China Merchants Highway holds a total of 13.86%).

Note: Wantong Expressway also announced on April 29 that China Merchants Highway intends to reduce its shareholding by no more than 3%.