There are two strategic routes for operating in the Pearl River Delta. Hopewell Highway infrastructure construction and operation of two expressways connecting major cities in the Pearl River Delta-the Guangzhou-Shenzhen Expressway and the Pearl River Delta West Coast Road. In April 2018, the company was acquired by Shenzhen Investment Control Co., Ltd. At present, Shenzhen Investment Holdings holds 71.83% of the company, followed by strategic investors Vanke (9.90%) and Taiping (9.45%). The latter two were invested in July and August 2018, respectively.
Strong shareholder background and shareholder support. Shenzhen Investment Control is wholly owned by Shenzhen SASAC, with total assets of about 500 billion yuan. It is the largest state-owned enterprise in Shenzhen, with operations in financial services, science and technology parks, emerging industries and high-end services. According to its reform plan launched in October 2018, Shenzhen Investment Holdings aims to become a major technology financial control platform in Shenzhen.
The revenue contribution of the Guangzhou-Shenzhen Expressway decreased, while that of the trunk road on the west coast of the Pearl River Delta increased. The share of net toll income of Guangzhou-Shenzhen expressway fell from 77.0% in 2014 to 69.3% in 2018. During the period from July to December 2018, the average daily toll income of Guangzhou-Shenzhen expressway fell by 4.9% compared with the same period last year, and the average daily traffic volume dropped 2.8% from the same period last year. This is due to (1) the influence of typhoon, (2) the traffic diversion of the surrounding road network (such as the North third Ring Highway in Guangzhou and two urban roads parallel to the Dongguan section of Guangzhou-Shenzhen Expressway), and (3) macroeconomic downward pressure. The share of net road toll income on the west coast of the Pearl River Delta increased from 23.0% in 2014 to 30.7% in 2018. From July to December 2018, the average daily toll revenue of the west coast trunk road of the Pearl River Delta increased by 11.0% compared with the same period last year, and the average daily traffic volume increased by 12.6% compared with the same period last year. We believe that the strong growth of road toll revenue on the west coast of the Pearl River Delta will be the main driving force for the company's future revenue growth.
Investment highlights and positive factors. (1) the growth opportunities brought by Guangdong-Hong Kong-Macau Greater Bay Area. The company's highway assets are located in the heart of the Bay area, spanning Guangzhou, Shenzhen, Dongguan, Foshan and Jiangmen. Despite the temporary diversion impact, the company's highway revenue will still benefit from the development of the region. (2) as an overseas listing platform controlled by deep investment, the company will benefit from the support of shareholders. (3) the reconstruction scheme of Xintang Interchange of Guangzhou-Shenzhen Expressway may bring potential value-added benefits. The draft proposal indicates that some of the land may be converted to residential use in the future. (4) the dividend yield is about 8.0%. The company maintains a dividend payout rate of 100%, which is higher than that of its peers.
The main investment risk. (1) the economic slowdown and changes in the surrounding road network have led to a reduction in revenue and profits of the Guangzhou-Shenzhen expressway; (2) highway policies that are disadvantageous to road operators, such as a discount on truck tolls to reduce enterprise logistics costs.
