2023 results miss our forecast
Yuexiu Transport Infrastructure announced its 2023 results: Revenue rose 20.6% YoY to Rmb3.97bn, and attributable net profit grew 68.9% YoY to Rmb765mn, missing our expectations. We attribute this to higher-than- expected depreciation and amortization costs and the impairment loss on investment in Shantou Bay Bridge of Rmb100mn. In 2H23, revenue rose 21.4% YoY to Rmb2.03bn, and attributable net profit surged 114.3% YoY to Rmb338mn.
The firm proposed to pay a dividend of HK$0.3/sh for 2023, implying a dividend payout ratio of 59.8%.
Trends to watch
Toll traffic volume recovers in 2023; toll revenue rises 20.3% YoY. Toll revenue rose 20.3% YoY to Rmb3.84bn in 2023, as toll traffic volume of road assets in which the firm holds stakes resumed growth thanks to the recovery of travel, and Henan Lanwei Expressway (acquired and consolidated in November 2022) recorded full-year revenue. Specifically, toll revenue from Guangzhou North Second Ring Expressway rose 12.7% YoY to Rmb1.11bn in 2023.
Road assets in Hubei performed well, with toll revenue rising 13.1%, 20.6%, 7.8%, and 17.4% YoY for Suiyuenan Expressway, Hancai Expressway, Han'e Expressway, and Daguangnan Expressway. Toll revenue from road assets in Henan slightly declined, falling 3.2% and 6.3% YoY for Weixu Expressway and Lanwei Expressway in 2023. We attribute this to a relatively high base, as trucks (which contributed higher toll charges than passenger cars) were diverted to expressways since the implementation of local traffic restriction measures in 2022.
Toll traffic volume to maintain steady growth in near term in 2024. Passenger cars: Data from the Ministry of Transport shows that passenger turnover of non-commercial passenger cars increased 5% YoY during the 2024 Chinese New Year (CNY) travel rush (January 26 to March 5), up 31% from 2019. Data from Transport Planning and Research Institute (TPRI) shows that the average daily motor vehicle traffic on nationwide trunk roads during the CNY holiday increased 15.9% YoY (up 10.9% from 2019), and the number of self-driving trips hit a record high.
Trucks: Data from the Ministry of Transport shows that truck traffic on expressways grew 4.7% YoY in January-February. We thus believe traffic volume growth on expressways will likely remain solid in 2024.
Earnings to grow in medium and long term; dividend yield to be high. According to corporate filings, the firm expects the reconstruction and expansion of its core road asset, Guangzhou North Second Ring Expressway, to start construction in June 2024. We believe the completion of this project will further improve traffic capacity and extend the toll collection period.
Moreover, Yuexiu Group has acquired Shandong Qinbin Expressway and Henan Pinglin Expressway. We believe these assets may be injected into the firm to further expand its assets. We think the firm's dividend payout ratio is relatively high, and we estimate the current price implies a dividend yield of 7.8% and 8.6% for 2024 and 2025, which is attractive.
Financials and valuation
Given higher-than-expected amortization costs, we lower our 2024 net profit forecast 24.9% to Rmb821mn. We introduce our 2025 earnings forecast of Rmb862mn. The stock is trading at 7.7x 2024e and 7.0x 2025e P/E. Given the firm's solid dividend payout, we maintain OUTPERFORM and target price of HK$5.19, implying 9.4x 2024e and 8.6x 2025e P/E, offering 22.4% upside.
Risks
Adjustments to toll collection policies; disappointing economic growth.
