Main viewpoints

1. The company released its 2017 semi-annual report: net profit attributable to a year-on-year increase of 59% financial data:

Realized operating income of 792 million yuan, an increase of 32.19% over the same period last year; realized net profit of 230 million yuan, an increase of 59.03% over the same period last year; and basic earnings per share was 0.2763 yuan. In the second quarter, single-quarter income and attributable net profit increased by 36.7% and 105% respectively compared with the same period last year.

Operating data:

Toll revenue reached 574 million yuan, an increase of 10.67 percent over the same period last year, of which tolls on Tanbai Road and Cenluo Road and Heping Bin Road increased by 8.31%, 22.22% and 13.72% respectively, and traffic volume increased by 0.35% over the same period last year. Among them, the traffic volume of Tanbai Road and Cenluo Road Heping Bin Road decreased by 6.34%, 8.57% and 0.5% respectively.

two。 Focus on the main business of toll roads, regain growth and achieve double-digit growth in toll income

1) focus on the main business of toll roads: since 2014, the company has gradually cleaned up its previous trading business (bulk, etc.) and prudently carried out new business. Refocus on the main business of toll roads, with toll revenue rising from 16 per cent in 2013 to 72.5 per cent in the reporting period.

2) Toll income has increased by double digits and bicycle income has increased significantly.

The company's toll income was 574 million yuan, an increase of 10.67% over the same period last year, car traffic increased by 0.35%, and bicycle revenue increased by 10.3%.

The core road production Tanbai Expressway and Cenluo Expressway account for 87% of the tolls, which are part of the main road Guang-Kun Expressway and the most convenient passage between Guangdong and Guangxi, respectively.

Among them, Tanbai highway toll revenue reached 394 million yuan, accounting for 68.6% of the toll revenue, an increase of 8.31% over the same period last year, traffic volume decreased by 6.34%, and bicycle revenue increased by 16% over the same period last year, up 10% from last year. (the Nanning-Baise section of the Yunnan-Guangxi high-speed railway was opened in December 2015 and opened to traffic in 2016. The diversion of the high-speed railway caused a decline in the traffic flow of the Tanbai high-speed railway. ) Cenluo highway toll revenue reached 105 million yuan, accounting for 18.3% of the toll revenue, an increase of 22.22% over the same period last year, traffic volume increased by 8.57% over the same period last year, and bicycle revenue increased by 13% over the same period last year, up 6% from last year.

In the first half of the year, the growth of toll revenue of the company is much larger than that of traffic, and bicycle revenue has increased significantly. We believe that there may be three reasons:

A) the proportion of goods vehicles has increased. High-speed railway is mainly diverted by buses and some private cars, but the company's road products, as a part of the main channel, trucks account for a relatively high proportion, and the toll standard of trucks is higher than that of passenger cars, and the economic warming leads to the rise of truck flow. the change of vehicle structure makes the average bicycle toll increase, which leads to the growth of toll income.

B) the average driving distance is longer. After the strict implementation of the highway overload policy, the number of "out-of-gauge vehicles" that "evaded" highway tolls in the past was greatly reduced, and the mileage of ordinary highways was correspondingly reduced, thus increasing the mileage of more convenient highways, thus increasing the average driving distance of all types of vehicles.

C) the company starts from internal potential tapping and external leakage plugging to realize the increase of tolls.

3) the profitability of core road products has been greatly improved.

Tanbai Expressway achieved a net profit of 233 million yuan, an increase of 53% over the same period last year, while Cenluo Expressway achieved a net profit of 52 million yuan, an increase of 62% over the same period last year.

3. Other business: each sector focuses on exploring new development

1) the contribution income of the real estate sector totaled 39 million yuan, down 1.45% from the same period last year, mainly self-construction, agent construction projects and land projects to be developed.

In order to concentrate, Wuzhou Real Estate Company listed on the Beibu Gulf property Exchange to transfer its 10% stake in the China-Hong Kong Group. Guangxi Exchange Group was delisted on July 11 at a price of 25 million yuan, an increase of 6.82 million yuan in net profit.

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.

2) the logistics plate is mainly Jinqiao Agricultural products Wholesale Market, Pingxiang Logistics Park, Pingxiang Hairun Intermarket Commodity Trading Market and Pingxiang Hairun Seafood Trading Market. The income comes from the sale of shops, rent, storage fees, customs declaration fees and so on. Affected by the fierce competition in Nanning cold storage and warehouse leasing industry, Jinqiao cold storage rental income fell 33% in the first half of the year compared with the same period last year, and warehouse leasing income decreased by 35% compared with the same period last year.

3) the trade section mainly relies on the two logistics parks under the jurisdiction of Jinqiao Company and Wantong Company, with the idea of developing the border trade of agricultural products and expanding the upstream and downstream supply chain of agricultural products. Take cold storage, warehouse, cargo yard, Wuzhou Tianmei e-commerce platform as resources, carry out warehouse receipt pledge, allocation procurement and other means.

In the first half of the year, the company carried out a number of trade projects, such as white sugar, business distribution, frozen products, soybean oil, chestnut, durian and so on, creating new revenue growth points. The cumulative income was 136 million yuan, an increase of 132 million yuan over the same period last year. Preliminarily explore the new path of "foreign procurement-exchange customs clearance-terminal sales", which has accumulated valuable experience for the next step to expand the port economy.

4. Benefit from RMB appreciation

Exchange impact: the company achieved an exchange gain of 25 million in the first half of the year, compared with a loss of 23 million in the same period last year, affecting financial expenses of 48 million yuan over the same period last year.

1) background introduction of US dollar loan:

In 2005, the company's Tan 100 Expressway Project had a loan from the Asian Development Bank (US $188 million, equivalent to RMB 1.279 billion). As of June 30, 2017, there were still US $157 million, or about RMB 1.07 billion, outstanding.

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 10.66 million yuan, the exchange loss is 72 million in 2016, and the exchange gain is expected to be 30 million yuan in 2017.

5. Profit forecast and investment advice: lower than industry average valuation, emphasizing "recommended" rating

1) 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 PE13.9, 12 and 10 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 11.3 times.

2) We believe that the highway industry may be in a warming period of both fundamentals and policies, and the company has an important strategic position for ASEAN under Belt and Road Initiative.

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.

3) the company focuses on its main business and returns to growth, benefiting from the strategic promotion of "Belt and Road Initiative" to ASEAN and the integrated development of cross-border e-commerce online and offline. Emphasize the "recommended" rating catalyst: a substantial appreciation of RMB, a substantial increase in toll income, 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% of the shares).