Incident: The company released its 2023 annual report, and achieved net profit of 3.297 billion yuan in 2023, an increase of 8.5% over the previous year; net profit after deducting non-return to mother was 2,931 billion yuan, an increase of 18.2% over the previous year.
Comment:
The major transportation business has contributed significantly, and its performance has been growing steadily for 23 years
1) On the revenue side, revenue for 23 was 26.546 billion yuan, an increase of 18.6% over the previous year. Among them, toll revenue from holding road products (including Qilu Expressway) was 10.247 billion yuan, up 10.2% year on year (Jihe Expressway toll revenue fell 47.0% year on year to 1,123 billion yuan due to the impact of road section renovation and expansion).
2) On the profit side, net profit returned to mother in '23 was 3.297 billion yuan, an increase of 8.5% over the previous year. Looking at the spin-off structure, in addition to the existing road production and capital operation business (23-year investment income of 1,371 million yuan), Rail Transit Group's net profit was 447 million yuan (share ratio of 51%, estimated net profit attributable to mother of 228 million yuan), Qilu Express's net profit of 534 million yuan (share ratio 38.925%, estimated net profit attributable to mother of 208 million yuan), and Shankao Information Group's net profit of 313 million yuan (share ratio of 65%, estimated net profit of mother).
The core road industry renovation and expansion is gradually coming to an end, or the sharp rise in volume and price has enabled the growth of the Beijing-Taiwan Expressway. The renovation and expansion of the Deqi section was completed and opened to traffic in mid-July '21; the renovation and expansion of the Jitai section was opened to traffic in October '22; 44% of the roadbed construction of the Qiji section was completed by the end of the year 23; a total of 10% of the pavement works were completed; and a total of 45.8% of the bridge construction was completed. On the Jihe Expressway, by the end of 23, the renovation and expansion project had completed a total of 78.15% of the roadbed project; a total of 45.4% of the pavement project; a total of 70.94% of the bridge construction project; and a total of 50.97% of the traffic safety project, according to the Ministry of Transport's forecast to be completed by the end of 24. The company's core road industry reform and expansion is gradually coming to an end. After completion, the increase in traffic and rate increases combined with the extension of the charging period are expected to lead to an upward shift in the profit center.
Focus on major transportation businesses, and business risks have been drastically narrowed
The company has strategically contracted its real estate business since 2016, and has continued to divest the real estate sector through various methods such as entrustment management to eliminate existing real estate, transfer of ongoing projects, and disposal of shares. In 2022, the company listed and transferred 100% of Yantai Hesheng's shares to achieve a disposal investment income of 538 million yuan, and completed the divestment of all real estate equity investments. Furthermore, in March '24, the company announced that it had received an arbitration award. In the trade arbitration award, Anju Group paid the principal amount of the previous Evergrande Group share transfer amount of RMB 2 billion and paid interest on the share transfer, late payment penalties, arbitration fees in this case, and other related expenses incurred by the applicant as a result of this case.
The return on cash dividends is impressive, bringing absolute revenue allocation value
The company's profit distribution plan announced a proposed cash dividend of 2,033 billion yuan for fiscal year 23 (record high), with a dividend ratio of 61.7%. According to the company's “Shareholder Return Plan for the Next Five Years (2020-2024)”, it is promised that “in the next five years (2020-2024), the profit distributed by the company in cash each year for the next five years (2020-2024) will not be less than 60% of the net profit of the parent company's owners in the consolidated statement achieved in that year.” The company's dividends per share for 2020-2023 were 0.38 yuan, 0.38 yuan, 0.40 yuan, and 0.42 yuan respectively. The absolute dividend value is steady and progressive, and it will continue to do a good job in investor returns in the future to maintain the stability and continuity of dividends.
Profit Forecasts and Investment Ratings
We estimate that the company's net profit for 2024-2026 will be RMB 3,636 billion, RMB 4.103 billion, and RMB 4.343 billion, respectively, corresponding to PE 12 times, 11 times, and 10 times, respectively. As one of the leading expressways in the country, the company's high-quality road products in and outside Shandong Province contribute to stable cash flow. Among them, the core road industry reform and expansion are expected to catalyze a rise in the profit center. Furthermore, the sharp narrowing of operating risks has brought relatively steady investment returns.
We are optimistic about the company's long-term development and high-quality shareholder dividend returns, and maintain a “buy” rating.
Risk factors: The renovation and expansion process fell short of expectations; policy progress fell short of expectations; investment risk exceeded expectations.