Shenzhen International is a transportation asset management platform directly under the Shenzhen State-owned Assets Administration Commission. It mainly focuses on transportation and logistics. The company's predecessor was “Maochang”. In 2000, the Shenzhen Investment Management Company completed the acquisition of the company and changed the name of the company to “Shenzhen International Holdings Co., Ltd.”. The actual controller of the company is the Shenzhen State Assets Administration Commission, which holds 44.24% of the shares. The company focuses on the core position of economically developed regions such as the Greater Bay Area, Yangtze River Delta, and Beijing-Tianjin-Hebei. Through self-construction and acquisitions, the company continues to consolidate logistics assets, expand the scale of operations, and build a logistics infrastructure network covering the entire “land, water, air and rail” business format. The company has a layout for all logistics application scenarios. The logistics node network includes inland waterway terminals, land logistics parks, air cargo terminals, and railway cargo terminals. Currently, the core business is toll roads and major environmental protection and modern logistics. Among them, toll roads and major environmental protection businesses are mainly operated by the holding subsidiary Shenzhen Expressway. In 2023, H1 toll roads and major environmental protection revenue accounted for about 67%. Modern logistics, including logistics park operations, logistics services, and port revenue, accounted for about 33%. The company's dividend payout policy is relatively stable. The dividend payment rate in 2017-2022 was around 50%, and the total dividend payout in 2017-2022 reached HK$11.4 billion.

Logistics business: Build a network of logistics nodes and build large and small closed loops to improve efficiency.

1) Small closed loop of “investment, construction, finance and management”: The company has been deeply involved in the field of logistics and warehousing for many years, and has realized profits through investment, development and operation of high-quality logistics projects and promotion of asset disclosure. Currently, the logistics business is centered on the development and operation of high-standard warehouses. The operating area of the logistics park is only 43% of the planned area, and it is still in the growth stage. With the gradual implementation of logistics park projects and the orderly progress of mature parks, it is expected that logistics operating income will grow steadily. 2) The large closed loop of “investment, construction and management” involves the transformation and upgrading of logistics park projects in urban centers. Land value added and development and operation contribute to profit elasticity. The company's Qianhai project in 2017-2023 brought a total of about 11.5 billion yuan in revenue to the company. Recently, the South China Logistics Park signed a land preparation agreement with the Longhua Development Bureau, etc., using the Qianhai project as a reference. The South China Logistics Park project is expected to contribute significantly to profit growth. 3) Port business: The company operates inland ports and provides supply chain logistics services. The commissioning of ports such as Jingjiang by the end of 2023 is expected to guarantee the steady growth of port business.

Toll roads and environmental protection: Toll road business is growing steadily, and major environmental protection business is gradually gaining strength. The toll road business and major environmental protection business are mainly managed by Shenzhen Expressway, a listed company owned by the company. The company holds approximately 51.36% of Shenzhen Expressway's shares. The Shenzhen Expressway is the leading highway in South China, participating in 16 highways, of which Shenzhen accounts for 24.5% and Guangdong accounts for about 74%. Profitability is stable. Excluding the impact of the epidemic, the gross profit of the company's toll fees fluctuated around 50%. With the economic development of the Bay Area, toll road profits are expected to grow steadily along with the increase in traffic volume, and the commencement of production of the Yangjiang River Phase II and Outer Ring Phase III projects is expected to contribute to the increase.

Since 2017, Shenzhen has developed a large environmental protection business. The environmental protection industry has franchise attributes. The company relies on financial advantages to lay out environmental protection business through investment and mergers and acquisitions, thus effectively compensating for the performance of the road property business with a long construction period during the period of new construction and expansion.

Other investments: Strategic holding of 49% of Shenzhen Airlines, waiting for airline profits to recover. Shenzhen Airlines is an important part of Shenzhen International's other investments. The company acquired a 10% interest in Shenzhen Airlines in 2002, increased capital twice in 2010 and 2011, and eventually the shareholding ratio rose to 49%. As of December 31, 2022, Shenzhen Airlines has a fleet of 226 aircraft and operates 308 domestic and international routes, including 301 domestic and international routes, 301 domestic routes within China and 7 international routes. The company's other investments are affected by many factors, including the group's own expenses and the profit contributions of participating companies. With the gradual withdrawal of some of the company's other investment projects, Shenzhen Airlines in 2020-2022 became an important factor affecting profits. According to the company's announcement, according to the equity law, since the company's equity in Shenzhen Airlines has been reduced to zero (2022), the company will not confirm further losses. With the gradual recovery of the aviation market in the future, Shenzhen Airlines is expected to reverse losses and contribute to the company.

Investment suggestions: The core logistics industry is growing steadily, businesses such as highways and ports have released stable profits, and land development in the South China Logistics Park has provided increased profits. The value of the company is highlighted due to increased dividends. We expect the company to achieve net profit of HK$21.6, 38.7, and HK$39.8 respectively in 2023-2025, corresponding to PE 8.5, 3.6, and 3.5, respectively. Considering that the company's dividend ratio in 2017-2022 is about 50%, assuming that the 2024 dividend ratio is 50%, and the corresponding dividend is about HK$1.94 billion, it is estimated that the current dividend rate is about 13.4%. Under high dividends, the company's market value is expected to return to the value range. According to segmental valuation estimates, the company's target market value is expected to be HK$25.3 billion, and the corresponding target price for 12 months is HK$10.56.

Risk warning: logistics park project progress or asset securitization progress falls short of expectations; transformation and upgrading progress falls short of expectations; highway traffic needs to be restored; risk of assumptions and profit forecasts falling short of expectations; risk of dividends falling short of expectations; risk of falling short of expectations; risk that returns from transformation and upgrading projects fall short of expectations