Incidents:
On March 28, 2024, Shenzhen International announced its 2023 annual results:
In 2023, the company achieved operating income of HK$20.711 billion, an increase of 32.70% year on year, and completed net profit to mother of HK$1,902 million, an increase of 51.66% over the previous year.
Among them, in 2023H2, the company achieved operating income of HK$13.783 billion, up 69.76% year on year and 98.94% month on month; completed net profit to mother of HK$1,810 billion, up 169.15% year on year.
Investment highlights:
The high-speed port built a profit base, and the transformation and upgrading of the logistics park achieved a net profit of HK$1,746 billion to mother
In 2023, the company's high-speed and port business continued to contribute stable profits. The above sectors contributed a total net profit of HK$1,092 million to the mother, building a profit base for the company. Since no REITs projects were listed in the company's logistics business in 2023, the logistics business achieved net profit of HK$532 million, a year-on-year decrease of 62.69%. Meanwhile, the logistics park transformation and upgrading business contributed greatly to the company's performance. This sector achieved net profit of HK$1,746 million, mainly due to the completion and delivery of the Qianhai residential project in Yicheng Qiwanli. The company confirmed revenue of about HK$5.5 billion and realized after-tax revenue of HK$1,563 billion. At the same time, according to accounting standards, there was no need to confirm further losses for the associated company Shenzhen Airlines in 2023. In the end, the company completed net profit of HK$1,902 million, an increase of 51.66% over the previous year.
The main logistics industry has grown steadily, and land modification and REITs have continued to contribute to profit flexibility as the eighth largest logistics real estate company in China. By the end of 2023, the company's logistics park had a planned land area of more than 10 million square meters, of which the company had obtained management rights of about 9.08 million square meters and an operating area of about 4.76 million square meters. The company plans to operate the logistics park to reach 8 million square meters by the end of 2025, and the logistics business is growing steadily. At the same time, the company fully exploited the land value of logistics parks with innovative business models of “investment, construction and management”, and continued to contribute to profit flexibility through land modification and REITs. ① In terms of investment, construction and management, real estate projects such as “Meiling Pass”, “Qianhai”, and “South China Logistics Park” have been realized year by year. Among them, the Qianhai project has released a total of about RMB 14.219 billion in pre-tax revenue six times over the past few years, helping the company's performance to grow steadily. As real estate development for the Qianhai project came to an end, at the end of October 2023, land preparation for the company's South China Logistics Park was officially completed. The company received a total of 1,058 billion yuan in eviction compensation plus 108,700 square meters of reserved land, of which 508,300 square meters of commercial housing were planned to be sold. According to our estimates, the project is expected to generate 15.771 billion yuan in after-tax revenue for the company. ② In terms of investment, construction and finance, by the end of 2023, Shenzhen International had completed the publication of REITs for 3 projects. Among them, the Nanchang Integrated Logistics Port confirmed net profit of HK$175 million; the Hangzhou Phase II project and the Hefei Feidong project contributed a total net profit of HK$657 million to the mother. Currently, the company is actively promoting the issuance of public REITs for the first phase of the Hangzhou project and the Guizhou project, and has made phased progress.
Continued stable high dividends, and undervaluation provides a margin of safety
The company attaches great importance to shareholder returns and promises to distribute core business profits of no less than 30% each year, but the company's actual dividend ratio remains around 50% all year round, with a total dividend of HK$9.383 billion over the five-year period 2018-2022. In 2023, the company plans to pay HK$0.40 per share, with a total dividend of HK$957 million, with a dividend ratio of 50%. If the company continues to maintain a 50% dividend ratio, we expect the company's dividend rates in 2024 and 2025 to be 13.22% and 13.48% respectively; the corresponding PE is 3.78 and 3.71 times, respectively. The value return path for undervalued high-dividend assets is clear.
Profit forecast and investment ratings We expect Shenzhen International's 2024-2026 revenue to be HK$16.589 billion, HK$17.250 billion and HK$17.789 billion respectively, with net profit attributable to mother of HK$3,802 billion, HK$3.878 billion and HK$3,968 billion, respectively. The corresponding PE is 3.78, 3.71 and 3.62 times, respectively, with corresponding dividend rates of 13.22%, 13.48% and 13.79%, respectively. The company holds high-quality assets, continues to stabilize high dividends, has a clear path for future value return, and maintains a “buy” rating.
Risks indicate that the progress of the South China Logistics Park transformation and upgrading project falls short of the expected risk; the risk of exchange rate fluctuations; the risk of fluctuating logistics park occupancy rates; the risk of highway diversion; differences between the Hong Kong stock valuation system and A shares; the estimates are for reference only, and are subject to the company's actual disclosure.