China High Speed Railway issued an announcement: (1) the company will increase the capital of Sanyo Railway Project Company, that is, Henan Yubo Railway Development Co., Ltd., by 1.6 billion yuan (divided into three years), acquire 13.25% of the shares in the project company, and become the largest shareholder of the project company. After the completion of the investment China High Speed Railway and its subsidiaries will undertake the whole line operation and maintenance of the project, supply of traditional technical equipment and intelligent equipment, intelligent platform, engineering services, consulting services, education and training, leasing and other businesses. (2) Shenzhou high-speed railway forms a consortium with China Construction, China Railway Bridge and China Railway Bridge electrification to participate in the general contract bidding for the construction of some sections of Sanyo Railway and the reconstruction of some sections of Sanyo Railway. Shenzhou High-speed Railway and its subsidiaries are responsible for the equipment integration in the project and the supply of professional equipment, the total contract amount is about 1.84 billion yuan, and the company intends to participate in the construction part, including not less than 700 million business such as intelligent platform. (3) the company and 6 subsidiary companies will form a consortium with Shenzhen Qianhai New Haijintong Investment Partnership to bid for the equity transfer project of Tianjin Metro Line 2 and Line 3 Rail Transit Operation Co., Ltd. and the stock TOT project of Tianjin Metro Line 2 and Line 3. The company and its subsidiaries intend to invest a total of not more than 1.32 billion yuan directly and indirectly through the partnership.
Comments:
With a stake in the Sanyo railway project, the freight corridor is highly profitable and is expected to provide the company with long-term sufficient orders and stable cash flow. The Sanyang Railway, with a total length of 1100 kilometers, is a trunk railway channel in the national railway network planning to fill the gap in the east-west horizontal freight link in the Central Plains. It is connected to the Monghua Railway, with an annual transport demand of 160 million tons, which is comparable to the Shuohuang Railway and other highly profitable large freight railways. BNSF is one of the most profitable railway freight companies in the United States and has been favored by investors for a long time. Shenzhou high-speed railway has become the largest shareholder by increasing its capital by 1.6 billion to acquire a 13.25% stake in the Sanyo railway project. According to the calculation of the three-year construction period and the 30-year operation period, the company is expected to get three parts of the income after the completion of the investment: (1) 4.2 billion yuan for equipment and services during the three-year construction period (600 million yuan in the first year, 1.65 billion in the second year, and 1.85 billion in the third year). Including traditional and intelligent equipment sales, intelligent management, maintenance, monitoring and dispatching platform construction, BIM simulation system, consulting services, engineering services and engineering equipment leasing, lesson training, rolling stock leasing, etc. (2) Operation and maintenance, it is expected to receive a contract of 1.33 billion yuan during the three-year construction period, and the annual contract amount after operation in 2023 is not less than 1.8 billion yuan; (3) transportation revenue, the annual transportation revenue is expected to reach 50-6.5 billion yuan, and the estimated annual transportation income is 70 million yuan from 2023 to 2027, with an average annual income of 175 million yuan after 2028.
Bid for Tianjin Metro Line 2 and Line 3 TOT project, enter the urban rail stock project, promote the company to achieve faster performance improvement. The company forms a consortium to bid for the TOT project of Tianjin Metro Line 2 and 3. If the bid is won, the company is expected to acquire the equity of Tianjin Metro Line 2 and Line 3 Rail Transit Operation Co., Ltd. (including 30-year management rights) and the long-term operation and maintenance business of two existing mature lines. On the one hand, it forms a strong support for performance growth, on the other hand, it can realize network operation with the BOT project of Tianjin Metro Line 7, which won the bid in the previous stage. To achieve more effective quality improvement and efficiency. Tianjin Metro Line 2, Line 3 and Line 1 together constitute the main framework of Tianjin rail transit. With the construction of Tianjin and the integrated development of Beijing, Tianjin and Hebei, the passenger flow is expected to continue to increase in the future and realize the increase of passenger revenue.
The strategic transformation of China's high-speed railway, the continuous landing of the entire line operation and maintenance projects, and the high performance assessment of equity incentives show confidence.
Shenzhou high-speed railway is a whole industry chain system equipment company, and the teams in all aspects of rail transportation have rich management experience, and the transformation of operation and maintenance services from equipment providers is a natural extension of the business model. In 2018, CIC Hi-tech offered to buy Shenzhou High-speed Railway at a price of 5.30 yuan per share. at present, the company is a central enterprise holding company, the largest shareholder is CIC Hi-tech, accounting for 20.27%, and the second largest shareholder is Haidian CIC, accounting for 12.59%. The CIC background helped the company win BOT/TOT and other projects, including Taizhou S1 line, Hangzhou-Shaotai high-speed railway, Tangshan Port Freight Line, Tianjin Metro Line 7. In the implementation of equity incentives, the conditions for exercising rights show confidence. The conditions for exercising rights are that the revenue in 2020-2022 is not less than 3.59 billion yuan, 4.23 billion yuan and 5.13 billion yuan, the net profit is not less than 590 million yuan, 750 million yuan and 1.01 billion yuan, and the ROE is not less than 7%, 7.5% and 8%.
Profit forecast: based on the continuous landing of the company's operation and maintenance projects, we maintain the EPS forecast value of 0.16 yuan in 2019 and raise the company's EPS forecast value to 0.22,0.29 yuan in 2020-2021, corresponding to PE of 24,17,13 times. Considering the continuous landing of the company's projects, the improvement of performance is expected to be continuously reflected in the future, giving China high-speed railway a 30-fold valuation in 2019, maintaining the target price of 4.80 yuan and maintaining the "recommended" rating.
Risk hint: the investment in railway fixed assets is declining, and the progress of new products and new projects is not up to expectations.