We recently met with Guangdong Transport to discuss the company's business transformation strategy and profit growth prospects for 2019 to 2020.
Due to the lackluster growth rate of the core passenger transport business, the company has shifted its business focus to the commercial operation of the company's operating assets of major highways and highways in Guangdong. The company's future profit growth will be mainly driven by the gas station energy business, convenience store business, and other commercial businesses related to service area assets.
Since 2019 is still a transition period for the company's business, its profit growth in 2019 will still be relatively lackluster. The stock's current 2019 price-earnings ratio is 6.7 times, which is similar to the historical average. Given the 2019 dividend yield of over 6%, we think there is limited room for stocks to decline. If the company makes progress in issuing A-shares and carrying out capital operations, it will help the stock price to be revalued. We think the shares are worth paying close attention to.
Passenger transportation business will remain stable
In 2017-2018, passenger traffic and revenue from the company's core passenger transportation business (which accounted for 50% of total revenue) declined for two consecutive years. Online car-hailing services launched by companies such as Didi have diverted the passenger traffic of Guangdong Transport's passenger transportation business.
The company expects its core business revenue to remain only stable during the period 2019-2020. In order to maintain stable passenger traffic, the company will add more service routes and provide more flexible and diverse transportation services to meet the travel needs of customers in urban and rural areas. The company will also develop its own online car-hailing business. The company has obtained a license from the Guangdong Provincial Government to launch an online car-hailing business and began operating the business in the fourth quarter of 2018.
Commercial operations of gas station energy businesses, convenience stores, and their service area assets will mainly drive profit growth
The company aims to increase the share of its service area business to the same level as its passenger transport business (2018:
(27% of total revenue). By the end of 2018, the company operated 27 self-branded gas stations, and Sinopec also contracted the operation of 142 gas stations from the company. The company aims to gradually take back the right to operate these gas stations from third parties, and at the same time, new gas station companies added to the new expressways developed by its parent company in the future will take the form of self-operation. The company plans to add 18 self-operated energy stations in 2019 (2018:7). At the end of 2018, the company owned 522 convenience stores under the Loyee (Loyee) brand. Its goal is to increase the number of convenience stores to 580 by the end of 2019. In addition to this, the redevelopment of some service area assets will also help the company increase the passenger traffic and profit growth of its own branded gas stations and convenience stores, thereby promoting the development of the company's service area investment promotion business and advertising media business.
Issuing A-shares and more capital operations will help unleash the company's hidden value company's main advantage, which is to obtain the right to operate high-quality operating assets around major highways in Guangdong with the support of the parent company. The company has shifted its focus from passenger transportation to the commercial operation of service areas, passenger terminals, and gas station assets on highways and highways developed by its parent company. The company plans to issue 89 million new A-shares to raise RMB 1 billion to support the development of these businesses. This offering should help attract market attention and improve its liquidity in the Hong Kong stock market after the shares are automatically included in the Hong Kong Stock Connect. We also expect the parent company and Guangdong Transport Transport to carry out more capital operations, thereby unlocking the company's intrinsic value.
valuations
According to our earnings forecast, the company's price-earnings ratio for 2019 was 6.7 times, close to the historical average. Overall, as stocks forecast dividend rates of over 6% in 2019, we think there is limited room for further stock price declines in the short term. Furthermore, as the company strives to increase the commercial value of operating assets, this will drive profit growth to accelerate again and release asset value, which will help stock prices to be re-valued.