Affected by exchange losses, 1H23's net profit is lower than expected.
The company released its interim results in 2023, with a total revenue of 8 billion yuan (year-on-year + 13.8%) and a net profit of 2.663 billion yuan (year-on-year + 67.9%). The net profit of 1H23 was lower than we expected (2.884 billion yuan), mainly because the exchange loss of 2Q (210 million yuan) was higher than expected. 1H23's net profit improved significantly compared with the same period last year, mainly due to:
1) recovery of traffic flow; 2) low performance base. 2Q net profit (1.117 billion yuan) is lower than 1Q net profit (1.546 billion yuan), mainly due to: 1) 2Q exchange loss; 2) securities profit decline compared with the previous month. Taking into account the exchange rate fluctuations of foreign currency liabilities and the decline in securities earnings, we reduce the net profit forecast of 2023 Universe 2024 Universe by 3.4pm 0.9 per cent to 50.01kg by 0.9 per cent in 2025. We reduce the target price by 4.8 per cent to HK $7.68 (previous value: HK $8.07), which is still based on the segment valuation method, of which the toll road discount rate WACC is 8.0 per cent. The company plans to raise funds for reconstruction and expansion, which has been approved by the shareholders' meeting (7Accord 24), but it has not yet been implemented, and our model and target price have not been reflected yet. Maintain a "buy" rating.
Benefiting from the recovery of travel, 1H23 toll revenue has grown strongly.
The company's 1H23 toll road revenue / segment profit increased by 17% / 104% compared with the same period last year, mainly due to: 1) residents' willingness to travel has greatly improved, and bus traffic has increased by 58% compared with the same period last year. 2) affected by the epidemic in the same period last year, the base was low. The increase of truck flow is not as good as that of passenger cars, mainly due to the weak global economic recovery, shrinking external demand and the month-on-month decline in the prosperity of the domestic 2Q manufacturing industry. 1H23 toll road revenue / segment profits returned to 102x103% in the same period in 21 years. The toll income of Shanghai-Hangzhou-Ningbo / Shanghai-Hangzhou-Ningbo Expressway increased by 30% compared with the same period last year, and returned to 112% in the same period of 21 years. Shanghai-Hangzhou-Ningbo Expressway maintained steady endogenous growth, but the upper three expressways were affected by the diversion of the Hangzhou-Shaotai Expressway (which was opened to traffic in February 22). The toll revenue of other sections increased by 7% compared with the same period last year, but decreased by 4% compared with the same period in 21 years, mainly due to the release of the Shenjia-Hu-Hangzhou Expressway in Q4 in 22.
Affected by the market environment, the profit of 2Q securities fell month-on-month.
The company's 1H23 securities business revenue / segment profit increased by 937% compared with the same period last year, of which 2Q securities profit decreased by 13% compared with 1Q month-on-month, affected by the financial market environment. The 1H23 net profit of Shanghai Agricultural Bank increased by 18.5% compared with the same period last year, and its 2Q net profit was basically flat. To sum up, the net profit of toll road / securities / bank contribution company 1H23 accounts for 69% of its home net profit; all businesses have recorded year-on-year improvement; from a quarter-on-quarter comparison, 2Q highway net profit has increased month-on-month, securities net profit has declined slightly, bank net profit has been stable, and exchange losses have been dragged down.
Outlook for the third quarter: buses usher in the summer peak season, trucks are expected to improve summer students' holidays, providing the basis for family self-driving trips, and the company's bus revenue is expected to rise to a new level. In July, the toll income of Shanghai-Hangzhou-Ningbo / Shanghai-Hangzhou-Ningbo / Shangsan Expressway, the core road product of the company, returned to 117% of the same period in 21 years, significantly better than that in the first half of the year. Financial, real estate, industrial and other "stable growth" policies will affect the demand for road freight transport.
With the inventory cycle bottoming out, highway truck flow is expected to improve month-on-month in the third quarter.
Risk hint: the growth rate of traffic flow is lower than expected, the trading volume of A stock market is lower than expected, the degree of road network diversion is higher than expected, the scale of capital expenditure is higher than expected, and the toll standard is lower than expected.