This report is read as follows:
COVID-19 's epidemic and falling oil prices have hit short-term profits, but investment opportunities for the company have emerged.
Main points of investment:
The dividend yield exceeds 5%, maintaining the "prudent overweight" rating. The epidemic and falling oil prices put pressure on the company's short-term profits. But the fall in share prices has led to a dividend yield of more than 5% in 2019, revealing investment opportunities for the company. The EPS forecast for 2019-21 will be reduced by 0.82,0.46 and 0.73 yuan (the original forecast is 0.86,0.87,0.89 yuan). According to the DCF valuation method and the comparable company dividend yield, the target price is reduced to 9.18 yuan (the original target price is 10.95 yuan).
The epidemic situation has a great impact on short-term transport volume and little impact on long-term value. The COVID-19 epidemic led to a sharp decline in the volume of cars and passengers in the first quarter, and the impact is expected to weaken in the second and third quarters. With reference to the 15% and 6% decline in the growth rate of vehicle and passenger traffic in 2008, as well as the diversion caused by free highways during the epidemic, we cautiously assume that both vehicle and passenger traffic fell by 20% in 2020. Nonetheless, the decline in profits in 2020 has had little impact on the company's discounted value.
The fall in oil prices weakens the competitiveness of car ferries, which puts pressure on freight volume and freight rates. The fuel subsidy policy, which exceeds the benchmark full subsidy, keeps the fuel cost of the Bohai ferry at a low level. The decline in fuel prices leads to a reduction in the cost of road transportation and weakens the competitive advantage of ferries. The diversion of highways brings pressure on loading rates and freight rates to fall.
M & An integration helps to improve profitability and stability. The withdrawal of Dalian Shipping Group in 2017 and the planned acquisition of Weihai and Haida passenger transport by Bohai Ferry in 2020 will promote market concentration. Bohai ferry has a good management level, profitability and financial situation, constantly expanding market share in the market fluctuations, helping to ease competition and improve profitability and stability.
Risk hint. Fuel subsidies are lower than expected, the advance renewal of ro-ro passenger ships brings asset impairment losses, cruise business losses increase, and the construction of tunnels and bridges in Bohai Bay diverts the demand for ferry passenger and cargo transport.