Investment suggestion

Since 2H18, we have released industry reports "eight questions and eight answers Highway" and "speech Highway" sequels, and choose the right time to release Nanjing and Shanghai.Deep highwayGuangdong Expressway, Yuexiu Traffic,Investment promotion highwayWait for an in-depth report on individual stocks and remind them of investment opportunities for outstanding stocks. At a time when the internal and external economic environment is uncertain and the stock market fluctuates greatly, we release this report, once again discuss the defensive value of highway stocks, and review the industry policy reasons for repeated share prices of highway stocks since the beginning of this year, and think that stock prices need to be repaired. At the level of individual stocks, we divide highway companies into stable return type and investment growth type, and are optimistic about Shenzhen Expressway Amax H, Nanjing-Shanghai Abino H, Yuexiu,Guangdong Expressway AInvestment promotion highway.

Reasons

Excellent highway stocks can pass through bulls and bears and are highly defensive when the market fluctuates. Combined with dividends and stock prices, Nanjing-Shanghai Ahammer H, Shenzhen Expressway Ascarp H and Yue Expressway A, Yuexiu H18 almost outperformed the market every year in 2013-18, with a cumulative outperformance of 70-176 percentage points. In the process of market turmoil or sharp fall, Nanjing-Shanghai Amax H and Guangdong Expressway A perform best. It has outperformed the market in every rapid decline since 2007, and outperformed the market by 12-20ppt in the decline phase.

In the long run, stable performance growth is the root cause of the defensive nature of stock prices. At the income end, the growth of vehicle flow is little affected by the economy, and the overall traffic flow of passenger highway has maintained an annual growth since 2000 (during the economic crisis is no exception); at the same time, the toll standard of expressway has not been adjusted for more than a decade, and with the asymmetrical rise in income and cost, the gap between revenue and expenditure of 400 billion yuan on the highway may continue to expand. Cost side: amortization accounts for 60% of the cost, which helps to give full play to operating leverage and increase cash inflows. In the short term, the dividend yield locks in the range of stock price fluctuations to a certain extent. For example, when the share price of Nanjing and Shanghai H falls to 6%, it will stop falling and achieve an absolute increase of 20% and 50%.

This year, highway stocks are affected by policy fluctuations, but the impact may be less than expected. In the revision and formulation of the regulations on the Management of Toll roads, we reiterate the view that there is little downside risk in reducing toll standards in the future. based on 1) the current situation of serious imbalance in revenue and expenditure in the highway industry, 2) there is no suitable way of financing for highway construction, and 3) the cost rises asymmetrically relative to income. With the current promotion of abolishing provincial toll stations and ETC promotion, we estimate that ETC concessions and withdrawal will drag 1-2ppt net profit growth on highway companies this year, while ETC concessions will drag on 3-4ppt net profit growth next year (regardless of the impact of new toll standards that have not yet been introduced). We believe that the impact may be smaller than expected and the valuation needs to be repaired.

At present, the stable return highway has better resistance to falls and reflects the valuation more fully. We divide highway companies into two types of stable returns (Nanjing-Shanghai Expressway, Guangdong Expressway, Anhui Wantong,Zhejiang, Shanghai, Hangzhou and Ningbo、Bay area developmentAnd investment growth type (Shenzhen Expressway, Yuexiu Traffic, Investment Promotion Highway, etc.). Stable return highway companies are relatively defensive, and currently get a higher valuation in the market; but the operating period of high-quality road products is approaching, reinvestment capacity may be reflected in the valuation system to a greater extent.

Profit forecast and valuation

Maintain the profit forecast and target price covering highway stocks. Combining the dividend yield of 2019 with the full-year profit growth rate, the following recommendations are recommended in order: Shenzhen Expressway Aplink H (we expect 2019 deduction of non-profit + 16%YoY, dividend yield 4.8% plus 5.7%, P / E ratio 9 / 8), Nanjing-Shanghai Expressway Amax H (we expect 2019 deduction of non-profit + 6%YoY, dividend yield 4.7% / 5.3%) ), Yuexiu Traffic (we expect 2019 deduction of non-profit + 6%YoY, dividend yield 6.7%, P / E ratio 8 times), Yue Expressway A (we expect 2019 non-profit + 3%YoY, dividend yield 6.8%, P / E ratio 10 times), Shanghai and Hangzhou Ningbo (we expect 2019 non-profit + 15%YoY, dividend yield 6.5%) Price-to-earnings ratio of 7 times), China Merchants Highway (we expect 2019 deduction of non-profit + 14%YoY, dividend yield of 3.7%, price-to-earnings ratio of 11 times), Anhui Wantong H (we expect 2019 deduction of non-profit + 4%YoY, dividend yield of 6.4%, P / E ratio of 6 times).

Risk

The diversion of other road products exceeded expectations; the toll policy of the highway industry changed.