Incidents:

On August 30, 2023, the Guangzhou-Shenzhen Railway released the 2023 semi-annual report:

Business aspects

The number of passengers sent by 1H2023 was 26.4097 million/yoy +99.18%, equivalent to 60.39% of the same period in 2019. The number of passengers sent by direct trains, intercity trains, and long-distance buses was 327,600, 104.17,900, and 15.6642 million, respectively, recovering to 27.12%, 51.03%, and 70.84% of the same period in 2019.

At 2Q2023, the number of passengers sent by the company was 143.36 million/yoy +158.56%, equivalent to 66.86% in the same period in 2019. Among them, the number of passengers sent by direct trains was 186,200, equivalent to 32.54% of the same period in 2019; the number of completed intercity train passengers sent was 5.928,900 people/yoy +147.27%, equivalent to 56.27% of the same period in 2019; and the number of completed long-distance bus passengers sent was 8.22,500 people/yoy +161.25%, equivalent to 79.57% of the same period in 2019.

Financial aspects

1H2023 achieved revenue of 12.381 billion yuan/yoy +30.44%, an increase of 21.53% over the same period in 2019; completed net profit of 677 million yuan, down 11.11% from the same period in 2019, after deducting non-return net profit of 621 million yuan, down 12.58% from the same period in 2019.

Among them, in 2Q2023, the company achieved operating income of 6.234 billion yuan, an increase of 22.95% over the same period in 2019; completed net profit of 272 million yuan, down 26.76% from the same period in 2019; and completed net profit deduction of 262 million yuan, a decrease of 29.63% over the same period in 2019.

Key points of investment:

The level of business recovery has reached another level. Drive-thru trains and long-distance trains contributed to a major increase in passenger transportation revenue, and railway travel demand continued to rise. The number of passengers sent by the 1H2023 Guangzhou-Shenzhen Railway reached 26.4097 million, equivalent to 60.39% of the same period in 2019. Among them, 2Q2023's passenger traffic volume reached close to 70% of the same period in 2019, up 18.73% from the same period in 2019. At the same time, the company took advantage of the interconnection of high-speed rail lines with the company's lines and direct access through Hong Kong to intervene in high-speed rail transportation, and room for growth has opened up. 1H2023 achieved revenue of 12.381 billion yuan, or 121.53% of the same period in 2019. Among them, 2Q2023's revenue increased by 88 million yuan to 6.234 billion yuan over the same period.

By business, in the first half of the year, the company achieved passenger transportation revenue, road network clearing and other transportation services of 5.320 billion yuan and 5.497 billion yuan respectively, up 30.52% and 15.96% respectively over the same period in 2019. Among them, of passenger transportation revenue, 1H2023 Express achieved revenue of 527 million yuan and long-distance vehicles achieved revenue of 3,016 million yuan, an increase of 210.66% and 44.49% respectively over the same period in 2019.

Wage cost inflation continues, management expenses continue to be optimized

On the cost side, 1H2023's operating costs increased by 967 million yuan to 11.375 billion yuan over the same period last year, an increase of 2,398 billion yuan over 2019. Among them, wage and welfare costs increased by 252 million yuan to 4,084 million yuan over the same period in 2019, an increase of 661 million yuan over the same period in 2019. However, company management expenses continued to be optimized. The management expenses rate for 1H2023 companies was 0.66%, down 0.48 pcts from the previous year and 0.76 pcts from 2019. 1H2023 achieved net profit of 677 million yuan to parent, down 85 million yuan from 2019.

The core railway assets of the Greater Bay Area look forward to the interpretation of network value

As the core railway asset of the Greater Bay Area, the company independently operates the “Shenzhen-Guangzhou-Pingshi” railway, which runs through the entire territory of Guangdong from north to south, connects Guangzhou, Shenzhen, and Hong Kong, and plays a heavy responsibility in railway transportation in the Bay Area.

The popularity of travel during the summer travel season in 2023 was high. The Guangzhou Railway Group sent nearly 120 million passengers, an increase of 11.8% over 2019, a record high. The company has taken advantage of the opening of the Ganshen-Shenzhen High Speed Rail to connect to the national high-speed rail network and operate high-speed rail trains in the form of transportation responsibility. With flexible fares, peak season results can be expected.

In the long run, new lines such as the Guangzhou-Shantou high-speed railway and the Guangzhan high-speed railway will be put into operation one after another in 2023-2025, which is expected to continue to contribute to the increase in passenger flow to the company. Furthermore, the renovation and upgrading of stations such as Guangzhou Railway Station and Guangzhou East Railway Station will further help the company to switch its attributes from general railway to high-speed rail. The company is ushering in an era of comprehensive transformation into the field of high-speed rail operation, and looks forward to full interpretation of network value.

Profit forecast and investment rating We expect the operating income of the Guangzhou-Shenzhen Railway in 2023-2025 to be 25.119 billion yuan, 27.210 billion yuan, and 28.40 billion yuan respectively, and the net profit to be 1,132 billion yuan, 1,376 billion yuan, and 1,523 billion yuan, respectively. The corresponding PE is 20.03 times, 16.48 times, and 14.88 times, respectively. We are optimistic about the continued recovery and growth of the company's passenger transport business and maintain the “increase in holdings” rating.

Risks suggest that the restoration of railway passenger demand falls short of expectations, the number of newly opened lines falls short of expectations, the risk of price fluctuations in railway reform, the risk of parallel high-speed rail and road diversion, and the renovation of important stations falling short of expectations.