Core view: Net profit for 23 was slightly lower than expected, and Yikang Technology did not perform well
Shandong Expressway released its annual report. According to the restated version, it achieved revenue of 26.5 billion yuan (yoy +18.6%) and net profit of 3.30 billion yuan (yoy +8.5%) in 2023. The latter was slightly lower than our expectations (3.41 billion yuan). Profit growth was mainly due to the release of travel demand and the return of vehicles after the Beijing-Taiwan Jitai section was renovated and expanded, but it was dragged down by Yikang Technology's depreciation. The company plans to pay a dividend of 0.42 yuan/share for 2023, corresponding to a dividend rate of 4.6%; the dividend amount accounts for 61.7% of net income to mother, and DPS accounts for 73.2% of EPS. The difference between the two is the impact of perpetual bonds. We expect the company's net profit to be 3.46/36.6/4.07 billion yuan in 2024/25/26 (previous value: 36.0/36.4 billion yuan), mainly considering the poor performance of Yikang Technology and the downward revision of the 24-year forecast, due to which Information Group revised its 25-year forecast. We adjusted the target price to 9.48 yuan (previous value 7.15 yuan) based on 15.6x 2024PE (30% premium on 12x of comparable company market capitalization, reflecting the company's high dividend rate advantage; previous value 11.6x2023PE). Maintain an “increase in holdings.”
Highways are benefiting from the recovery of travel, with Beijing-Taiwan related road sections being the highlight
The company's toll revenue/gross profit increased by 10/9% year-on-year to 102/55 billion yuan in 23, mainly due to the release of travel demand, the recovery of the economy driving up trucks, and a low base. In terms of road divisions, thanks to the return of vehicles after the renovation and expansion of the Beijing-Taiwan Jitai section, toll revenue from the Beijing-Taiwan Expressway and Huanghe Second Bridge increased 43/ 25% year on year, up 81/30% year on year; the Jihe Expressway was fully renovated and expanded, and the main line was partially closed starting 2023/2/16, and toll revenue decreased 47% year over year, down 54% year on year; Jiqing Expressway toll revenue increased 7% year on year, but it fell 2% year on year from 21, affected by the year-on-year diversion of the Jiqing Middle Line (full line completed in September 23); the Jijin Expressway toll revenue decreased year on year 15%, compared to 21 years The decline was 22%, mainly due to the opening of parallel sections; toll revenue for other road sections increased 19% year over year, up 7% from '21.
Rail transit is improving, information groups are stable, and investment income is growing steadily. The revenue and net profit of Rail Transit Group (51% of the company's shares) increased by 3/ 15% year on year to 4.5/450 million yuan in 23 years, mainly due to an 18% year-on-year increase in railway traffic. Information Group (the company holds 65% of the shares) increased 9% year-on-year to 4.4 billion yuan in revenue in 23 years, achieving net profit of 313 million yuan, mainly due to improved construction efficiency of mechanical and electrical engineering. Investment income in '23 fell 21% year on year to 1.37 billion yuan. In '22, Yantai Hesheng's disposal revenue of 540 million yuan made the base high, and the company increased its capital by 30% of the maintenance group's shares in '23, contributing 80 million yuan to investment income; after excluding the impact of two matters, non-investment income increased 7% year on year, continuing steady growth.
Yikang Technology fell short of expectations, focusing on the impact of the Jiqing middle line diversion
Affected by the rectification of the PPP project, Yikang Technology (51% of the company's shares) project construction declined and recorded a net loss of 90 million yuan in 23. Since net profit was lower than the performance promise, the company confirmed performance compensation income of 145 million yuan, but at the same time, goodwill impairment of 118 million yuan was calculated, which in turn dragged down profits. The Weifang to Qingdao section of the Jiqing Middle Line and the Jinan to Weifang section were opened in December '22 and September '23 respectively, which had a diversion impact on the Jiqing Expressway. Jiqing toll revenue in Q4 in '23 dropped by about 15% compared to the same period in '21.
Risk warning: Residents' unwillingness to travel is poor, road networks are diverted, capital expenditure is high, and there is a risk of asset impairment.