On April 18, 2024, Shandong Expressway released its 2023 annual report. In 2023, the company achieved operating income of 26.546 billion yuan, an increase of 18.62% over the previous year; net profit to mother was 3.297 billion yuan, an increase of 8.47% over the previous year. Among them, Q4 achieved revenue of 8.606 billion yuan and net profit of 630 million yuan to mother.
Traffic in operating road production resumed, and revenue increased year-on-year. In 2023, the company's revenue increased 18.62% year-on-year, mainly due to increased service revenue during PPP project construction and increased toll revenue. (1) Highway business: The company recovered traffic and achieved toll revenue of 10.247 billion yuan in 2023, an increase of 10.15% over the previous year. Among them, the Jitai section of the company's core road production line was opened early in October 2022, and toll revenue for the Beijing-Taiwan Expressway increased by 43.09% over the same period last year. (2) Railway business: The subsidiary Shandong High Speed Rail Transit Group's revenue increased 16.10% year on year, and net profit increased 37.73% year on year, mainly due to freight volume reaching 105 million tons in 2023, an increase of 17.6% year on year.
The gross margin decreased year over year, and the cost ratio improved year over year. In 2023, the company achieved a gross profit margin of 30.4%, a year-on-year decrease of 4.3pct. In terms of cost ratio, the company's fee rate for the 2023 period was 13.28%, down 1.56pct year-on-year. Among them, the sales expense ratio was 0.33%, up 0.05 pct year on year; management expense ratio was 3.96%, down 0.36 pct year on year; R&D expense ratio was 1.82%, down 0.03 pct year on year; and financial expense ratio was 7.16%, down 1.22 pct year on year. In 2023, the company achieved investment income of 1,371 billion yuan, a year-on-year decrease of 21.25%. Despite the decline in the expense ratio during the period, due to the decline in the company's gross margin, the company's net interest rate to mother was 12.42% in 2023, down 1.16 pct from the previous year.
The progress of the renovation and expansion project exceeded the plan, and the absolute value of dividends increased. The company's Beijing-Taiwan Expressway Qiji renovation and expansion project completed an investment of 2,312 billion yuan in 2023, exceeding 32% of the annual tasks. The Jihe Expressway renovation and expansion project completed an annual investment of 5.26 billion yuan to ensure high quality and high standards of annual planned investment. According to the company's dividend commitment, the company's annual dividend for 2020-2024 will not be less than 60% of net profit returned to mother. The company plans to pay 2,033 billion yuan in 2023, with a cash dividend ratio of 61.66%. Looking back at the company's past dividend per share, it has remained stable or rising since 2019, when it was raised to 0.38 yuan. In 2023, the absolute value of the company's dividend was 0.42 yuan per share, an increase of 5% over 0.4 yuan per share in 2021-2022.
Considering that the company continues to advance highway construction, the company's 2023-2025 net profit forecast was revised to be 3.89 billion yuan and 4.41 billion yuan, and the 2026 forecast was added to 4.88 billion yuan, maintaining the “buy” rating.
Risk warning
Economic restoration falls short of anticipated risks, construction progress of renovation and expansion projects falls short of expected risks, risk of changes in highway toll policies, and risk of drastic reduction in investment returns.