Investment highlight
For the first time, Guangdong Expressway (000429) was recommended and rated with a target price of 9.29 yuan, corresponding to a price-to-earnings ratio of 12.6 times 2019. And as the fifth part of the "looking for stable return series" of the transportation group (the first four articles are long-term Logistics, SITC International Holdings, AVIC and Shenzhen Expressway respectively. ) the reasons are as follows:
In the current economic environment, we select road companies with a high proportion of passenger transport, steady growth and low valuation. Guangdong high-speed passenger traffic accounts for nearly 70%, while passenger transport is mainly driven by the growth of car ownership, and is relatively little affected by the growth of car sales and macro-economy. Over the past five years, net profit CAGR 54 per cent (the high growth is mainly due to the acquisition of road products in 2016), share prices have long outperformed the market and are now valued at twice the standard deviation below the average for nearly 12 years.
The company focuses on highway toll business (97% of net profit), of which the holding section Guangzhu / Fokai / Guangfo contributes 74% of net profit. After deducting the one-time tax benefit in 2017, the net profit of 2017 / 1~3Q2018 is 12.5% compared with the same period last year. We expect the company's existing road products to maintain steady growth in 2018 / 2020 (year-on-year + 4% / 4%) and gross profit (+ 7% / 3% / 4%). After the completion of the reform and expansion of Buddha in 2020, it is expected to accelerate the overall profit growth of the company.
The current profit forecast and valuation are not taken into account: ① may expand its main business by means of reconstruction, expansion and acquisition in the future, and the "1-4" industrial strategy of ② may catalyze profit growth. The company has achieved substantial expansion of its main business through the acquisition of Guangzhu. At present, the mileage of managed road production accounts for only 4.5% of the parent company, and its debt ratio is only 40%. It has room for continued expansion. At present, the four non-main businesses account for only 3% of profits. YGO Capital was established in 2017, and Fosun assisted in management and was responsible for investment business. Future investment projects and intelligent transportation projects are expected to land, opening up room for performance growth and valuation.
The dividend ratio is the highest among listed companies (with a commitment of not less than 70% in 2018-20), the operating cash flow / income is higher than that of the same industry, and the total dividend yield is expected to exceed 20% in three years, 6.7% in 2018 and 7.1% in 19 years respectively.
What is the biggest difference between us and the market? Even if the company's earnings growth is not high in the next two years, a steady growth rate of 5-6% plus a dividend of 7% is still the target of high-quality absolute returns.
Potential catalyst: road production expansion exceeded expectations and diversified business made progress.
Profit forecast and valuation
We estimate that the company's EPS in 2018-20 will be 0.70 yuan (- 2.5%, + 12%) / 0.74 yuan (+ 5.7%) / 0.79 yuan (+ 5.5%), respectively, and the CAGR will be 8%. The current share price corresponds to 9.9 times the 19-year PCME. The recommended rating is given for the first time, and the target price is 9.29 yuan per share according to the DCF method, corresponding to 12.6 times the 19-year upside space of PAccord Eprit 26%.
Risk
The policy of the highway industry has changed, the surrounding new road network has been diverted, and the promotion of diversified business has been less than expected.