Main points of investment:

Domestic demand-driven, high-speed recovery charges, the main industry is expected to rise in volume and price. The Yanda passenger ro-ro ship route competes with the Bohai Rim Expressway. From Yantai to Dalian, the ferry can arrive in about 8-10 hours. The road detour distance is more than 1400 km, and it takes about 16-20 hours. The ferry can save the fuel cost of vehicles, highway costs and time, while reducing vehicle wear and working time. Highway tolls were free in the first quarter, and the company was forced to cut prices. With the resumption of highway tolls on May 6, the main business of ro-ro passenger ships is expected to rise in both volume and price. Due to the double impact of COVID-19 epidemic and free highway tolls, non-net profit fell 179% to-56 million in the first quarter, and the stock price was under short-term pressure. After the highway resumes the charge, the company's valuation will be repaired soon.

The southeast coastal sea connection line, the demand growth is strong. With the steady economic growth of coastal provinces, road freight volume has grown at a compound growth rate of 7.9% and 4.6% since 2014. Benefiting from the steady growth in demand, the company's parent net profit center has risen from 200 million to 400 million. As an important part of road and waterway transport, we believe that the company's subsequent vehicle demand is expected to be maintained at 5%. The company's steady growth is guaranteed.

Policy barriers, the main moat is sufficient. Due to the safety of passenger transport and strict access, the rolling capacity of new passengers needs to be approved by the Ministry of Communications. Bohai Bay passenger ro-ro ship market has no new capacity approval since 2009, only through on-line carrying capacity of the new ship to replace the old ship to improve the loading capacity.

With the acquisition of Weihai Haida, the competition pattern will be improved and the synergy advantage can be expected. The ro-ro fleet of passengers in Bohai Bay includes China Shipping passenger Transport (9), China Railway Bohai Railway Ferry (3), Bohai Ferry (9 passenger roll, 2 cargo roll) and Weihai University (2). The company announced on March 31 that it had completed the acquisition of 66.67% of the shares of Haida passenger Transport in Weihai City, and that the actual Bohai Bay competitor 4 had changed from home to 3. The competition pattern of Weihai-Dalian and Yantai-Dalian route had been significantly improved, superimposed ticketing system, fleet management and other collaborative advantages, and the net profit margin center was expected to rise.

A water highway that can raise prices independently without its useful life. The main business of the company's Yantai-Dalian route is the section of Tongsan Expressway (Tongjiang, Heilongjiang-Sanya, Hainan). The traffic flow is docked with the southeast coastal highway and grows steadily with the economic development. The main difference between the highway and the highway is that (1) there is no problem of service life, the old ship is replaced by the new ship after depreciation, and there is no reinvestment problem of the highway. (2) different from expressways, the company has the ability to raise prices independently and will adjust prices according to expressways and automobile fuel prices to ensure the competitiveness of ferry transportation compared with the expressway around the Bohai Sea and stabilize the loading rate at a higher level.

Profit forecast and investment advice. Assuming that the vehicle flow in 2020 returns to the 2019 level, and with the steady growth of the economy, it is predicted that the company's return net profit from 2021 to 2022 is 265 million, 503 million, 545 million, corresponding to PE15 times, 8 times, 7 times. Considering the dividend rate of 50% of the company's history, 70% of the company's capital expenditure is expected to decline under the downward pressure of the economy, and the dividend is expected to be close to 10% in 2021. 9 passenger ro-ro ships of the 2018-2019 company can achieve a net return of more than 400 million yuan. Weihai Haida acquired 2 new passenger ro-ro ships, superimposed 2 new boxes to replace old goods roll-off ships to improve the efficiency, and the home net profit center is expected to stabilize above 500 million. Coverage for the first time, giving a "overweight" rating.

Risk hint: economic recession, Bohai Bay traffic negative growth. The tunnel technology is higher than expected, and the smoke tunnel can be reopened to overcome the difficulties of safety, ventilation, financing and low return.