The company's net profit reversed losses in 23 years, benefiting from the recovery of travel and the generation of revenue generated by the Hong Kong High Speed Rail
Guangzhou-Shenzhen Railway released a performance forecast: net profit of 1.02 to 1.12 billion yuan and net profit deducted from non-net profit of 98,000-1.08 billion yuan in '23; net loss of 2 billion yuan in '22. The performance forecast was lower than our expectations ($1.22 billion), or due to higher 4Q settlement costs. Net profit improved year-on-year in '23, mainly due to 1) the recovery of railway passenger flow; 2) revenue generation by high-speed rail crossing Hong Kong. On a quarterly basis, net profit for 1Q/2Q/3Q/4Q in '23 was RMB 4.1/2.7/3.4/50 billion yuan (4Q calculated based on the forecast center). Net profit declined month-on-month in 4Q, mainly due to cost settlement in 4Q.
Considering that actual costs were higher than expected, we adjusted our 2023/24/25 net profit forecast to $10.7/12.1/1.29 billion (previous value: $12.2/12.7/1.38 billion). We estimated the value based on 0.95/0.71x 2024EPB (2017-2022 average plus 0.5 times standard deviation; previous value: 0.95/0.71x2023E PB) and 2024E BPS of 3.82 yuan. The target price for A Shares/H Shares is RMB3.63/ HK$2.98 (previously RMB 3.55/ HK$2.90). Maintain “gain”/“buy”.
Railway passenger flow resumed in '23, and the contribution of high-speed rail crossing Hong Kong increased
The revenue of 1H23 intercity trains is 98% of 1H19. Referring to the ratio of 1H to 2H actual passenger traffic, we expect intercity train revenue in '23 to be 109% in '19, which is similar to the level of recovery in railway passenger traffic across the country (105% in '19). Full customs clearance resumed at the port of Shenzhen in early '23, direct transit services resumed, and the station was changed from Hung Hom to West Kowloon, where passenger traffic is more intense, making it more attractive to travelers. 1H23 drive-thru revenue increased 211% compared to 1H19. Considering the increase in the number of 2H23 drive-thru trains and the low base of 2H19, we expect drive-thru revenue to increase 395% in '23 compared to '19. The company added responsibility for running the long-distance high-speed rail service between Hong Kong and Hong Kong. 1H23 long-distance bus revenue increased 44% compared to 1H19. Referring to the ratio of 1H to 2H actual passenger traffic, we expect long-distance bus revenue to increase 64% in '23 compared to '19.
Freight was relatively lackluster. Operating costs or the same increase in business volume 1H23 freight revenue increased 1% compared to 1H19, and cargo delivery/freight per ton changed +3%/-1% compared to 1H19. Also, considering the 5% drop in 2H23 shipments compared to 2H19, we expect freight revenue to drop in '23 compared to '19. On the cost side, 1H23 employee remuneration (accounting for 34% of the cost) increased by 21% compared to 1H19; due to the resumption of the Hong Kong Express Service and the increase in the number of flights, the operation of the long-distance high-speed rail and the shift of some Guangzhou-Shenzhen intercity services to Shenzhen North Railway Station outside the company's management, equipment rental and service fees (accounting for 37% of the cost) increased 49% compared to 1H19; we expect 2H23 costs to continue the trend in the first half of the year.
Future road network changes will be complicated. The core station will be upgraded to the Guangzhou-Shantou High Speed Rail after opening (September '23), and the company will move to the Guangzhou-Shantou high-speed railway via the Guangzhou-Shenzhen Line with about 10 pairs of trains from the Guangzhou-Shenzhen Line to Chaoshan. After the opening of Guangzhou Baiyun Station (December '23), about 6 pairs of Guangzhou-Shenzhen intercity trains were extended to Guangzhou Baiyun Station to handle general speed trains at Guangzhou Railway Station and Guangzhou East Railway Station. Guangzhou Railway Station and Guangzhou East Railway Station plan to carry out high-speed rail station renovation (Guangzhou Railway Group), and the company is expected to use this to upgrade passenger transport products. However, during the construction of the station, the impact of transportation organization adjustments on profits may be complicated, and our model has not yet reflected it.
Risk warning: Intent to travel weakens, road networks are being diverted, capital expenditure exceeds expectations, and labor costs have risen sharply.