The net profit reported in the interim was in line with expectations, benefiting from the recovery in travel
Guangdong Expressway A released its semi-annual report. In 2023, H1 achieved revenue of 2,340 million yuan (yoy +13.76%), net profit of 886 million yuan (yoy +14.46%), net profit of 914 million yuan (yoy +22.97%) after deducting non-net profit of 914 million yuan (yoy +22.97%).
The net profit from 1H23 was in line with our expectations ($899 million). Profit growth has mainly benefited from a recovery in travel and a low base. Among them, Q1/Q2 achieved net profit of 410 million yuan/476 million yuan (yoy -4.8%/+38.6%).
We expect the company's EPS to be 0.77, 0.84, and 0.88 yuan respectively in 2023-2025 (same as the previous value). Our target price of 9.97 yuan (previous value: 9.06 yuan) is the average value calculated by DCF and PE. DCF is based on WACC = 6.50% (previous value: 6.89%), PE is based on 12.3 x 2023E PE (the wind unanimously expects a 25% premium rate on 9.8x 2023PE to reflect the high dividend advantage; the previous value is 10.8x). The company promised a dividend rate of 70% for 2021-2023. Based on this, we expect the company's dividend rate to be 7.1% in 2023. Maintain the “buy”.
Traffic improvements combined with a low base figure drive 1H23 revenue growth
The company's 1H23 revenue increased 14% year on year, mainly because: 1) the recovery in travel led to an increase in traffic flow; 2) 1H22 was affected by the epidemic on a low base. Compared to 1H21, the company's 1H23 revenue decreased by 6%; among them, the suspension of fees at the Guangfo Expressway dragged down 1H revenue by about 9%; after excluding Guangfo, the company's 1H23 deduction of non-revenue increased by about 3% compared to 1H21. Among them, the revenue of the Fokai Expressway 1H23 increased by 7% compared to 1H21, and the West Guangdong Corridor attracted the return of surrounding vehicles after completion of the renovation and expansion; the 1H23 revenue of the Guanghui/Guangzhou-Zhu-East Expressway increased by 3%/2% compared to 1H21, maintaining steady endogenous growth. At 1H23, the company's investment income in associated companies decreased by 11% compared to 1H21. Among the shareholding projects, the Jiangzhong Expressway is being renovated and expanded, and 1H23 revenue is down 32% from 1H21; the Huiyan Expressway is affected by the diversion of surrounding roads, and 1H23 revenue is down 9% compared to 1H21.
Steady recovery of revenue, profit, and cash flow from operating activities
The company's 1H23 operating income/gross profit/operating profit/net profit increased 14/18/16/ 14% year on year, and net cash from operating activities increased 40% year on year, all showing a year-on-year improvement trend. Looking ahead to the second half of the year, we believe that the degree of recovery in bus/truck traffic is closely related to the recovery in manufacturing industry/consumer spending intentions. Currently, the economy is in the inventory removal stage, and the industry may continue the trend of improving buses and weak trucks in the second half of the year.
The proposed transformation and expansion of the core road production and the extension of the charging period continues to benefit from the proposed renovation and expansion of the Guangzhou-Zhudong Expressway of the Greater Bay Area Connectivity Company. The company undertakes capital investment of about 3.4 billion yuan (announcement 2022-10-21); the Guanghui Expressway is also in the early stages of renovation and expansion research. Referring to the case where the Fokai Expressway was renovated and expanded and the charging period was extended, we expect that the charging period for the company's core road production will also be extended through the renovation and expansion. The company benefits from connectivity with the Guangdong-Hong Kong-Macao Greater Bay Area. December 2022 “Australian cars going north”
Implementation of the policy, implementation of the “Hong Kong Bus North” policy in July 2023; after applying online, single-license vehicles from Macau and single-license vehicles from Hong Kong can directly enter Guangdong via the Hong Kong-Zhuhai-Macao Bridge and the Zhuhai Highway Port. The application conditions are more flexible and relaxed. The company's road production is connected to the west bank of the Pearl River Delta, and long-term traffic is expected to benefit.
Risk warning: willingness to travel has declined, road network changes have exceeded expectations, capital expenditure has exceeded expectations, and rates have been lowered.