Event Overview:
Recently, Tongbao released the “2023 Annual Report”. In 2023, the company achieved operating income of 742 million yuan, up 24.19% year on year; net profit to mother was 191 million yuan, up 26.66% year on year; net profit without return to mother was 181 million yuan, up 29.71% year on year. After deducting toll collection in 2023, the net cash flow from operating activities was 210 million yuan, an increase of 71.37% over the previous year.
The ETC distribution business is growing rapidly. Looking at the gradual expansion of new cloud control platform products by business, according to the annual report, ① smart transportation electronic billing business revenue of 375 million yuan (YoY +24.23%), of which the ETC distribution business achieved operating income of 223 million yuan (YoY +28.53%). The company's ETC distribution business is leading the country. In 2023, it has developed a total of 2,067,900 ETC users, accounting for 10.17% of the number distributed nationwide; the total number of ETC users has been developed. Across 30 provinces and cities across the country, the total number of users ranks in the top three in the country. “New car front installation+used car trading+equipment replacement” continues to increase ETC distribution. In addition, electronic toll service revenue was 152 million yuan (YoY +18.43%). With the recovery and growth of highway traffic, the cumulative export traffic volume of the Jiangsu Connected Expressway was 803.25 million vehicles in 2023, with an average of 2.2 million vehicles per day. The company's electronic toll service business showed a rapid recovery trend. At the same time, the company has increased the application of ETC in other transportation fields. It has reached cooperation agreements with 22 steam ferry operating platforms in Anhui, Zhejiang, Sichuan, Guangdong and other provinces, and 6 platforms have been launched and put into operation.
② The smart traffic operation management system business continues to be developed using cloud technology as a platform, integrating AI robots to help smart transportation. In 2023, revenue was 344 million yuan, an increase of 22.29% over the previous year, and revenue for a single Q4 was 193 million yuan, which accelerated in the second half of the year. Among them, the main products and revenue added in 2023 include state-owned clouds of 11.9 million yuan, high-speed brain cloud control platforms of 10.36 million yuan, AI video analysis cloud control platforms of 19.2 million yuan, paid robots of 11.2 million yuan, and digital twin services of 17.84 million yuan.
③ The smart transportation derivative business uses “ETC+” as the core to deposit massive traffic data elements. Relying on the number of ETC users and data volume advantages, “ETC+” is used as the core to build ecological scenarios, focusing on vertical business areas such as high-speed traffic, parking, refueling, road area economy, and vehicle maintenance, to provide users, financial institutions, etc. with value-added services, customer drainage, supply chain collaboration services, and risk management and control services. Revenue of 22.82.55 million yuan (YoY +61.37%) was achieved in 2023.
The promotion of ETC 2.0 has accelerated, and equity incentives show confidence in steady development. Currently, ETC has become the most important toll method for toll roads in China. With the continuous improvement of the national network toll mechanism, the continuous expansion of application scenarios, and the continuous improvement of technical standards, ETC applications are moving towards the 2.0 stage. Smart transportation application scenarios will be more diverse, such as vehicle-road collaboration (V2X), autonomous driving, etc. We believe that the company's ETC distribution business is expected to benefit from the new OBU replacement boom in the ETC 2.0 phase.
Recently, the company released the “2024 Restricted Stock Incentive Plan (Draft)”. The number of restricted shares to be granted is no more than 7.7699 million shares, and the total number of proposed incentive recipients is no more than 126, accounting for 14.0% of the company's total number of 899 employees (as of December 31, 2023).
In terms of performance assessment, based on operating income in 2023, the revenue growth rate for 2024/2025/2026 was not less than 13.5%/30%/50%, respectively. After conversion, the year-on-year growth rates were 13.5%/14.6%/15.4%, respectively, and the earnings per share for 2024/2025/2026 were not less than 0.50/0.56/0.63 yuan, respectively, demonstrating the company's confidence in steady operation.
Investment advice
Tongbao is a leader in the ETC electronic charging industry and is expected to benefit from the new round of OBU replacement boom in the ETC 2.0 phase. Taking into account equity incentive amortization expenses, we expect the company's operating income from 2024 to 2026 to be $945/11.82/1,474 million yuan, respectively, and net profit to mother of $2.51/3.27/418 million yuan, respectively. Maintaining the buy-A investment rating, the 6-month target price is 24.71 yuan, which is equivalent to a dynamic price-earnings ratio of 40 times in 2024.
Risk warning:
ETC 2.0 fell short of expectations; business expansion outside the province fell short of expectations; implementation of data element policies fell short of expectations.