This report is read as follows:
As the controlling shareholder of Zheshang Securities, Zhejiang Shanghai, Hangzhou and Ningbo will benefit from the improvement of securities business profits brought about by the marginal recovery of the market while maintaining the stability of the highway business.
Summary:
Maintain the target price and maintain the overweight rating. The highway business of Shanghai, Hangzhou and Ningbo in Zhejiang Province resumed toll collection on May 6, and the growth stabilized. The stock market has accelerated its warming since July. As the major shareholder of Zheshang Securities, the profit of securities business has the possibility of exceeding market expectation. We temporarily maintain the company's 2020-22 homing net profit forecast of 213.81 trillion yuan, the overall value of the company is still undervalued, maintain the target price of 8.19 Hong Kong dollars, maintain the overweight rating.
Highway tolls are resumed, and the compensation policy can be expected. During the 2020 epidemic, the company's highway business was affected by both declining traffic flow and free policy. We expect revenue from the company's road business to decline by about 23% for the full year. The highway free policy ended on May 6, and with the resumption of production and work, the national highway traffic volume has returned to positive growth, and the company's highway business has stabilized and rebounded. According to the press conference of the Ministry of Communications, we expect the highway company to receive corresponding compensation for the loss during the free period, which is likely to be extended.
The securities business has accelerated its warming, and its growth may exceed market expectations. Zhejiang Shanghai, Hangzhou and Ningbo indirectly holds 46.9% of Zheshang Securities through the third company, a holding subsidiary, and is the controlling shareholder of Zheshang Securities.
In 2015, securities business profits accounted for 32.3% of the company's net profits. In 2019, securities business profits fell by about 50% compared with 2015, and accounted for 12.5% of the company's net profits. Since July 2020, the securities market has accelerated to warm up, and the possibility of the company's securities business exceeding the expected growth of the market has increased.
The company as a whole is still undervalued. If we discount the company's road property according to prudent assumptions and estimate the securities business as 1 times the net assets of PB, the company's DCF value will reach 33.8 billion yuan at the end of 2019. The market overestimates the negative impact of the epidemic and highway free policy on enterprises, and gives a big discount on the reinvestment of the company. The company's current share price corresponds to a dividend yield of 6.2% in 2019, and a high dividend can reduce the risk of reinvestment uncertainty.
Risk factors. The trend of securities business is difficult to judge, the introduction of compensation policy is still uncertain; short-term dividend policy may be changed by the epidemic; the rhythm and results of reinvestment are uncertain.