The company's smart transportation electronic toll business is growing steadily, and new applications such as ETC+ vehicle-road collaboration have further opened up business space and expanded the boundaries of traffic data element development and application; product and regional expansion supports the rapid growth of the smart transportation cloud business, and the overall business space is broad. In addition, the company issued an equity incentive plan to enhance the enthusiasm of core stakeholders, clarify shareholder return requirements, and help the company operate with high quality.
Incident: Tongbao released the 2023 Annual Report. The company23 achieved annual revenue of 742 million yuan, YoY +24.19%; realized net profit attributable to mother of 191 million yuan, YoY +26.66%; realized deducted non-net profit of 181 million yuan, YoY +29.71%. Sales/management/R&D expenses were $0.87/0.73 billion, YoY +9.46%/+6.48%/+10.47%, respectively. Net operating cash flow of $219 million was achieved, compared to -126 million yuan in the same period last year. Among them, in the 23Q4 single quarter, the company achieved operating income of 290 million yuan, YoY +23.23%; realized net profit of 36 million yuan, YoY -18.90%; realized deducted non-net profit of 35 million yuan, YoY -17.75%.
There has been a steady increase in the smart transportation electronic billing business. Throughout 2023, the company's ETC issuance/electronic billing business achieved revenue of 223/152 million yuan, YoY +28.53%/+18.43%. On the ETC distribution business side, the company is the only authorized ETC distribution agency in Jiangsu Province. It is the first in the industry to achieve Internet distribution and achieve a national distribution business layout. In 23 years, the company developed a total of 2,067,900 ETC users, accounting for 10.17% of the number distributed nationwide. The user coverage area has spread across 30 provinces and cities across the country. At the same time, highway traffic increased significantly in 23, leading to a marked increase in electronic toll service fee revenue. The company also increased the application of ETC in other transportation fields to further open up the electronic toll business space.
Product and regional expansion support the rapid growth of the smart transportation cloud business. Throughout 2023, the company's smart transportation operation and management business achieved revenue of 343 million yuan, YoY +22.29%. On the one hand, the company continues to promote smart transportation cloud products to the whole country, and now covers 20 provinces, cities and regions across the country. On the other hand, the company's new smart transportation cloud products continue to bring in revenue growth. The main products and revenue added in 2023 are the state-owned cloud cloud control platform of 11.9 million yuan, the high-speed brain cloud control platform of 10.36 million yuan, the AI video analysis cloud control platform of 1.2 million yuan, and the digital twin business of 17.84 million yuan. Many products only entered the promotion period in the second half of the year, which has already brought in incremental revenue of more than 70 million yuan, and can be expected to drive revenue growth in the future.
New applications such as ETC+ vehicle-road collaboration further open up business space and expand the development and application boundaries of traffic data elements. The “Technical Guidelines for Highway Engineering Facilities to Support Autonomous Driving” issued by the Ministry of Transport regulates autonomous driving roadside construction, further laying the foundation for the construction of the V2X industry. In terms of ETC empowering V2X, in 2022, the Ministry of Transport issued the “Highway Network Toll System Optimization and Upgrade Project Plan” (Draft for Comments), and the Ministry of Transport's Road Network Center released an ETC-based intelligent solution for expressway services — “Traffic Catcher” (TrafficCatcher). The construction of ETC-based vehicle-road collaborative systems has been mentioned in several documents and reports. If this plan is implemented, it is expected that ETC-based vehicle road collaborative construction on the expressway will put forward new requirements for ETC equipment on the car side and road side, thereby bringing about the need to upgrade and replace ETC equipment and open up new space for ETC-related business manufacturers such as Tongbao. Furthermore, ETC+ vehicle-road collaboration will further enrich the scope of traffic data that can be obtained by ETC equipment and enable the development and application of traffic data elements.
Release equity incentives to boost the motivation of core stakeholders. The company announced the 2024 restricted stock incentive plan. The number of restricted shares to be granted is no more than 7.769 million shares (1.91%), and the total incentive target is no more than 126 company executives and core talents. The performance targets are: 1) Based on 23 year revenue, the 24-26 revenue growth rate is not less than 13.5%/30%/50%; 2) 24-26 deduction of non-EPS is not less than 0.5/0.56/0.63 yuan; 3) 24-26 cash dividends account for at least 50% of the current year's distributable profit.
In addition to setting performance targets and increasing the enthusiasm of core stakeholders, equity incentives also put forward clear requirements for shareholder returns.
Maintain a “Highly Recommended” investment rating. The company's smart transportation electronic toll business is growing steadily, and new applications such as ETC+ vehicle-road collaboration have further opened up business space and expanded the boundaries of traffic data element development and application; product and regional expansion supports the rapid growth of the smart transportation cloud business, and the overall business space is broad. The company's net profit for 2024-2026 is estimated at 2.42/2.90/342 million yuan, corresponding to 2024-2026 PE31/25/22 times. Maintain a “Highly Recommended” investment rating.
Risk warning: Policy progress falls short of expectations; smart transportation operation management system business development falls short of expectations; downstream demand fluctuates.