Incidents:
In 2023, the company achieved revenue of 3.97 billion yuan, a year-on-year increase of 20.6%, and achieved net profit of 770 million yuan to mother, an increase of 68.9% over the previous year. Net profit attributable to mother was slightly lower than expected, mainly because the Shantou Bay Bridge was affected by parallel line diversion, with an impairment loss of about 100 million yuan. Among them, the second half of 2023 achieved revenue of 2.03 billion yuan and realized net profit of 340 million yuan to mother, an increase of 113.9% over the previous year.
Benefiting from the recovery in travel demand, toll revenue increased 20% year on year in 2023. 2023 benefited from a significant recovery in traffic. The company achieved toll revenue of 3.84 billion yuan, an increase of 20.3% over the same period in 2022. Among them, the main road products, the Guangzhou North Second Ring Expressway, Hubei Suiyuenan Expressway, and Hubei Daguangnan Expressway each achieved revenue of 11.1/7.2/4.6 billion yuan, an increase of 12.7%/13.1%/17.4% over the previous year, accounting for a total of 59.3% of revenue. Toll revenue for the Henan Weixu Expressway and Lanwei Expressway decreased by 3.2% and 6.3% year-on-year, mainly due to traffic restrictions in parts of Henan in 2022, which caused trucks to detour to these sections of the road, which led to a high base for the same period. Construction of the Guangzhou North Second Ring Road renovation and expansion project began in 2024. Focus on the impact of subsequent construction on traffic flow.
Financial expenses fell 10% year on year, and companies with a significant advantage in dividend ratios continued to reduce debt levels. The company's financial expenses in 2023 were 550 million yuan, down 10.1% from 630 million yuan in the same period in 2022. The overall weighted average interest rate was 3.3%, down 0.3 pct year on year, and the balance ratio decreased by 1.5 pct. The company's annual dividend for 2023 was HK$0.30 per share, with a dividend rate of approximately 59.8%. Since 2009, the company's dividend rate has remained above 50%. Conservatively assuming that the company's dividend rate in 2024 is 55%, based on the closing price of HK$4.19 on March 7, the company's dividend rate is estimated to be about 7.1% in 2024, which has a significant dividend rate advantage.
Truck traffic has recovered moderately. In the medium to long term, focus on the Group's high-quality road product injection in 2023. Overall, the recovery in bus traffic is significantly better than that of trucks. Expressway truck traffic increased by about 5% year-on-year in January-January 2024. Focus on the continued recovery of freight in the later stages and the resulting flexibility in performance.
In the medium to long term, the group acquired Shandong Qinbin Expressway and Henan Pinglin Expressway in December 2021 and February 2023, and is expected to be injected into the company later through the “parent company incubation - listed company purchase” model.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 40.91/42.12/4.346 billion yuan, respectively, with corresponding growth rates of 3.14%/2.94%/3.17%; net profit to mother of 8.29/8.77/ 925 million yuan, respectively, corresponding growth rates of 8.27%/5.86%/5.45%, and EPS 0.50/0.52/0.55 yuan per share, respectively. In view of the excellent operating efficiency of the company's subsidiary road products, and the Group is expected to continue to inject high-quality road products in the future, referring to comparable company valuations, the company was given 9.5 times PE in 2024, corresponding to a target price of 4.75 yuan (according to 1 HKD = 0.9202CNY, corresponding to HK$5.16) to maintain the “buy” rating.
Risk warning: Economic growth falls short of expectations; traffic declines due to road network diversion; changes in toll policies.