The Guangzhou-Shenzhen Railway issued a performance forecast announcement. The company expects to achieve net profit of 6-750 million yuan in the first half of 2023, reversing losses over the previous year; of these, Q2 is expected to achieve net profit of 19-350 million yuan, an increase of 153% to 194% over the previous year.

The Q2 results reversed losses, and net profit from the mother's mother is expected to increase by 153%-194% year-on-year. According to the company's announcement, the net profit of 2023H1 is expected to reach 6-750 million yuan, reversing losses over the previous year. If 2023Q1 achieved net profit of 4.1 million yuan, net profit from the return mother is expected to increase 153%-194% year-on-year to 19-350 million yuan in 2023Q2, a decrease of -52% to -15% from the previous year. In the first half of 2023, railway passenger traffic across the country improved. The Shenzhen-Port port resumed normal customs clearance one after another. Guangjiu Express officially resumed on January 15, while Shenzhen Luohu Port resumed passenger customs clearance services on February 6. The company's direct bus business restarted after two years of stagnation, leading to a marked recovery in passenger transport business revenue.

Focus on the summer travel opportunities to increase the company's Q3 performance. Pay attention to the first peak summer travel season opportunity after the epidemic. According to statistics from China Railway Group, railways across the country are expected to send a total of 760 million passengers during the 62-day summer travel season (7.1-8.31), an average of more than 12 million passengers per day. Compared with the cumulative number of 735 million passengers sent in 2019, this is a significant increase of 11.86 million passengers per day. The total number of passengers sent by Guangzhou Railway during the 10-day summer travel season has exceeded 16.2% in 2019. According to the Guangzhou Railway Group, 10 days before the summer travel season (July 1 to July 10), Guangzhou Railway sent a total of 19.39 million passengers, an increase of 6.58 million over 2022, an increase of 51.3%. The number of passengers increased by 2.71 million from 2019 to 116.2% in 2019. Of these, from July 8 to 10, more than 2.1 million passengers were sent per day for 3 consecutive days. The company's Q3 passenger transport revenue is expected to grow quite well.

Investment advice. We believe that the company: 1) benefits from the restoration of domestic railway passenger traffic demand and passenger flow crossing the port; 2) in the medium to long term, the company is rooted in the core regions of Guangdong, Hong Kong and Macao, fully benefits from the economic development of the Greater Bay Area, and the continuous development of the long-distance bus business. At the same time, under the continuous improvement of the high-speed rail network planning in the province, it is expected to be fully connected to high-speed rail operations in the future, and there is plenty of room for long-term passenger flow and train growth. Based on the company's performance forecast increase announcement, we lowered our profit forecast slightly. The company's net profit for 23-25 years is estimated to be 13.1/1,56/1.69 billion yuan respectively, corresponding to the 23-year PE of 18.6x and the PB of 0.9x, maintaining the company's “increase in holdings” investment rating.

Risk warning: Macroeconomic changes have led to insufficient demand for railway passenger transport, changes in railway freight policies, the impact of parallel line diversion, road network planning and core hub site renovation and expansion falling short of expectations.