Net profit for the first quarter was lower than expected
The company achieved total revenue of 1.90 billion yuan in 1Q23 (+7.4% year-on-year); net profit of 443 million yuan (+7.1% YoY) was lower than our expectations (545 million yuan). Net profit in 1Q increased year-on-year, mainly due to: 1) the moderate recovery of travel after the epidemic subsided; 2) the low base for the same period last year. Compared with the same period in '21, 1Q net profit fell 18%, mainly due to: 1) the expiration of the Wuhuang Expressway in December '22; 2) the increase in franchise amortization. Performance fell short of expectations, mainly due to investment returns falling short of expectations and amortization adjustments. Considering that it will still take time for traffic to return to potential levels, we lowered our net profit forecast for 2023/24/25 by 9/8/8% to RMB 24.2/27.3/2.80 billion. Based on the segmented valuation method, we gave the target price of 600548 CH/548 HK RMB 10.24 /HK$8.88 (previous value: RMB 11.38/HK$10.06). Assuming that the 2023 dividend ratio is 55% (in line with the shareholder return plan), we expect the 2023 dividend to be 0.565 yuan/share, with a dividend ratio of 6.1%/8.8% for A-shares/Hong Kong stocks. Maintain a “buy” rating.
Toll revenue returns to 21-year levels
The company's 1Q23 revenue increased 7.4% year over year. Among them, toll revenue increased 11.9% year over year, mainly due to:
1) After the epidemic subsided, travel recovered moderately; 2) The base was low for the same period last year. Compared to the same period in '21, 1Q toll revenue fell 7.8%, mainly due to the expiration of the Wuhuang Expressway in December '22. If the influence of the Wuhuang Expressway is excluded, toll revenue fell 0.4% compared to 1Q21. Looking at the sub-projects, 1) the 1Q toll on the Outer Ring Expressway increased 40% compared to the same period in '21, mainly because the opening of Outer Ring Phase II (early 2022) led to an increase in overall traffic flow; 2) the 1Q toll on the Qinglian Expressway decreased 25% compared to the same period in '21, mainly due to the continuous diversion impact of the Guanglian Expressway (end of 2021); 3) 1Q tolls for other projects (excluding the Wuhuang Expressway) fell 2.2% compared to the same period in '21.
Wind power operations have remained stable, and environmental revenue has increased dramatically
The company's 1Q23 wind power revenue increased 1.7% year-on-year, and the project operation was stable. The company's organic waste operating revenue increased dramatically, mainly due to: 1) the acquisition of Lisai Environmental Protection in April '22; 2) the revenue from the subsidiary Lander Environmental Protection operation project increased 17% year-on-year, benefiting from the restaurant dine-in recovery, which stimulated an increase in food waste collection and transportation, and an increase in the number of projects entering the operation stage.
Franchise amortization increased, and investment returns declined
On the cost side, the amortization amount for the Guangzhou/Guangzhou/Guangzhou-Xi/Qinglian/Outer Ring Expressway franchise was adjusted, reducing 1Q23's net profit by 0.3 billion yuan. The company's 1Q23 investment income decreased 4% year over year. Among them, the net profit of Chongqing Water/Sanfeng Environmental 1Q23 under Derun Environmental changed -26%/+15% year-on-year; the performance of the Guangzhou-Shenzhen Expressway and the Guangzhou-Zhuhai-West Line Expressway under Bay Area Development was lackluster. Compared with the same period in '21, the 1Q23 toll revenue of the Guangzhou-Shenzhen Expressway and the Guangzhou-Zhuhai-West Line Expressway fell by 2%/5%, and segment performance declined by 35%/29%.
Risk warning: Traffic growth was lower than expected, environmental protection projects and road property acquisitions fell short of expectations, capital expenditure was higher than expected, and fees were lowered.