2023 results fall short of our expectations
The company announced its 2023 results: revenue of 3.97 billion yuan, up 20.6% year on year; net profit to mother of 770 million yuan, up 68.9% year on year. Performance was lower than our expectations due to the company's depreciation and amortization costs exceeding our expectations and the calculated impairment value of the Bay Bridge in Shantou, Guangdong Province of 100 million yuan. 2H23's revenue was 2.03 billion yuan, up 21.4% year on year, and net profit to mother was 340 million yuan, up 114.3% year on year.
The company paid HK$0.3 per share in 2023, with a dividend ratio of 59.8%.
Development trends
Traffic picked up across the board in 2023, and toll revenue increased 20.3% year over year. Benefiting from the recovery of residents' travel in 2023, the company's participation in road traffic resumed growth. Combined with Lanwei Expressway, which was acquired and listed in November 2022, recorded full annual revenue in 2023. As a result, the company achieved toll revenue of 3.84 billion yuan, an increase of 20.3% over the previous year. Among them, the Guangzhou North Second Ring Expressway achieved toll revenue of 1.11 billion yuan in 2023, an increase of 12.7%; road production performance in Hubei was excellent, with toll revenue increasing 13.1%/20.6%/7.8%/17.4% year on year with Yuenan/Hancai/Han'e/Daguangnan Expressway respectively; road production in Henan declined slightly, and toll revenue for Yuxu/Lanwei Expressway fell 3.2%/6.3% year on year respectively in 2022, mainly due to surrounding local road control measures diverted trucks to highways and compared with truck toll standards High, so the base is relatively high.
In the short term, traffic is expected to maintain steady growth in 2024. In terms of buses, according to the Ministry of Transport, the number of non-commercial passenger passenger trips during the 2024 Spring Festival travel season increased 5% year on year, up 31% from 2019. According to traffic planning research, the average daily motor vehicle traffic volume on the national highway section during the Spring Festival holiday increased 15.9% year on year, up 10.9% from 2019, and the scale of self-driving travel reached a record high. In terms of trucks, according to the Ministry of Transport, highway truck traffic increased 4.7% year-on-year in January-January. Therefore, we believe that the increase in motorway traffic is expected to remain steady in 2024.
In the medium to long term, performance is growing, and the dividend ratio is high. In terms of growth, according to the company's announcement, the company expects the entire renovation and expansion of the Guangzhou North Second Ring Expressway, which is the core road product, to begin in June 2024. We believe it is expected that traffic capacity will be further improved and the toll period extended after completion. Furthermore, we believe that the Shandong Qinbin Expressway and Henan Pinglin Expressway acquired by Yuexiu Group are expected to be injected into listed companies later to further expand the size of the company's assets. Judging from the dividend rate, the company's dividend ratio is high. According to our estimates, the 2024/2025 dividend rate corresponding to the current price is 7.8%/8.6%, which is attractive.
Profit forecasting and valuation
Considering that amortization costs exceeded our expectations, we lowered 2024 net profit by 24.9% to $821 million, and introduced 2025 profit of $862 million. The current stock price corresponds to 2024/2025 7.7 times/7.0 times P/E. Considering the company's steady dividend, maintaining an outperforming industry rating and a target price of HK$5.19, corresponding to 9.4/8.6 times the 2024/2025 P/E, there is 22.4% upside compared to the current stock price.
risks
The fee policy was adjusted, and the economic growth rate fell short of expectations.