1H performance is not as good as we expected
Company 1H income 5.722 billion yuan, year-on-year + 24%; return to the mother net profit of 1.978 billion yuan, corresponding to earnings per share of 0.46 yuan, + 9% year-on-year. The company's 2Q revenue increased 44% year-on-year to 3.43 billion yuan, the company's gross profit increased 23% year-on-year to 1.657 billion yuan, and home net profit decreased 4% to 947 million yuan, corresponding to 0.22 yuan per share. 2Q fell short of our expectations, mainly because the non-operating profits and losses of headquarters, such as fair value gains on euro convertible bonds, exchange gains and losses, decreased by nearly 200 million yuan compared with the same period last year. We believe that this is also the main reason for the 9% year-on-year decline in highway division profits.
1H highway main business grew moderately. Revenue / traffic volume year-on-year + 2.4%/+0.3%YoY, only the third Expressway and the newly acquired Shenjia-Hu-Hangzhou Expressway in April declined. Sub-sections: income of Shanghai-Hangzhou-Ningbo Expressway increased by 3.4%; income of truck flow affected by macroeconomic environment in Yiwu, Shanghai-Hangzhou Expressway; income of Yong-Jin Expressway + 10.7% YoY; income of Hangzhou-Huizhou Expressway + 10.7% YoY; income of Huizhou-Hangzhou Expressway + 3.3%YoY. Revenue from the newly acquired Shenjia-Hu-Hangzhou Expressway / Zhoushan Cross-Sea Bridge is year-on-year-1.3%/+3.0%YoY.
1H securities business grew due to a year-on-year pick-up in the capital market. Revenue / segment profit is + 8% / + 91% year-on-year, brokerage business improved year-on-year (commission income + 6% year-on-year, interest income + 12% year-on-year), but income from investment banking, asset management, margin trading and other businesses declined year-on-year.
Trend of development
Since the beginning of this year, the growth rate of highway traffic flow / income has slowed significantly, mainly affected by the base and the external environment. Due to the slightly lower-than-expected performance of the newly acquired road products due to diversion and the economic environment, we expect that the break-even point may occur next year, but the profitability of the acquired road products is still high and the intrinsic value will not be harmed. The company is greatly affected by the foreign trade environment, and we think it will continue to grow slowly in the second half of the year.
Financial factors such as brokerage business and euro convertible bonds have an impact on the company's performance in varying degrees, and the valuation fluctuates greatly, but the company pays dividends according to the main highway business, so it has a limited impact on the dividend and DCF value.
Profit forecast and valuation
Maintain the 2019 EPS forecast RMB0.87 yuan (+ 9%) / 0.97 yuan (+ 12%), corresponding to the dividend yield of 6.5 times the dividend yield of 6.4% and 7.2%. Maintain the outperform industry rating, but due to depressed market sentiment, cut the target price by HK $10.11 to HK $8.59 (corresponding to the 2019 / 20 9xPamp E 8 times), the current share price has 21% upside.
Risk
Economic growth has further slowed, Sino-US trade frictions have intensified, and the stock market has been in the doldrums.
