Incident: The company released its 2024 quarterly report. In 24Q1, net profit attributable to mother was 1,293 billion yuan, a year-on-year decrease of 4.2%; net profit after deducting non-return to mother was 1,292 billion yuan, a year-on-year decrease of 4.1%.
Comment:
Influenced by incidental factors, net profit from 24Q1 fell 4.2% year on year 1) Revenue side: The company's 24Q1 revenue increased 49.1% year over year to 3,022 billion yuan, mainly due to the merger of China Merchants and China Railway. In fact, we analyzed that the company's investment and operation sector in the first quarter was affected to a certain extent by bad weather factors and the increase in free time for motorway buses during the Spring Festival holiday.
2) Cost side: Toll road business costs are highly rigid. The company's 24Q1 operating costs increased 59.7% year-on-year to 1.944 billion yuan, which is higher than the revenue side.
3) Financial expenses side: The company's 24Q1 financial expenses increased 65.1% year over year to 458 million yuan, of which interest expenses increased 50.6% year over year to 495 million yuan, mainly affected by the merger of China Merchants China Railway.
4) Investment income side: The company's 24Q1 investment income fell 4.5% year-on-year to 1,126 billion yuan. Our analysis was mainly due to the fact that the company's shareholding projects were mainly highway companies, which were also affected to a certain extent by bad weather factors and extended free travel time for expressway buses during the Spring Festival holiday.
5) Net profit side: In the end, the company achieved net profit of 1,293 billion yuan in 24Q1, a year-on-year decrease of 4.2%.
The performance of the main toll road business is expected to continue to be steady and improving
The pace of epitaxial mergers and acquisitions of high-quality main road assets continues, consolidating the ability of toll road investment and operation platforms.
The company's asset integration pace is positive. In addition, it jointly completed the Pinglin Expressway Auction Project with Guangzhou Yuexiu Group Co., Ltd. and added 106 kilometers of highway investment mileage through French auctions; in November 2023, it was announced that it would jointly invest 2,683 billion yuan with the related party Zhejiang Hangzhou-Ningbo to establish a joint venture “Zhejiang Zhijiang Transportation Holdings Co., Ltd.” and acquire 60% of Hunan Yonglan Expressway Company's shares (already completed). In addition, the subsidiary Jiaxuan Holdings plans to invest 4.412 billion yuan to acquire 100% of the shares of Lujin (China) Infrastructure Co., Ltd. (according to (Agreed transaction in a sales agreement). As the leading platform for highway operation in the country, the company's investment and operation capabilities continue to be demonstrated and transmitted to the implementation of performance, and the pace of mergers and acquisitions of high-quality assets continues. In addition to the implementation of announced projects, we analyzed that the highway asset pool of infrastructure central enterprises still has some high-quality projects to choose from. In addition, the promotion of the Bofu Expressway public REITs project, or some transformation of Yuexiu transportation infrastructure accounting methods, is expected to increase profits and achieve further upgrading of operating models.
In the future, we are still optimistic about the company's smart transportation and transportation technology sector's downward export advantage. Relying on the cooperative enterprise platform and its China Merchants & Communications Technology Division, the company took the lead in laying out intelligent transportation (8.5% of revenue in 23) and transportation technology (22.6% of revenue in 23) and transportation technology (22.6% of revenue in 23) in the industry, with a clear first-mover advantage. We are optimistic that the company will continue to promote the export of related sector businesses to the outside world based on shareholders' strength and investment advantages.
The leading platform for highway operation, and the implementation of debt-for-equity swaps is expected to highlight that the company is a leading platform for road operations. We continue to be optimistic about two major growth factors: 1) In the road industry, the company maintains a more active pace of mergers and acquisitions of high-quality assets compared to its peers, and its existing road products are younger than their peers, so it is expected to contribute considerable performance growth; 2) In terms of the highway industry chain business, the company is making efforts to lay out smart transportation and transportation technology businesses, and has a wide range of business export space to the outside world. Looking at sentiment, the debt-to-equity swaps for the company's convertible bonds have been completed, and the latest total share capital has increased to 6.820 billion shares. The implementation of the matter has brought about a positive trend in stock price sentiment.
Lock in the 22-24 cash dividend ratio promise to bring absolute revenue allocation value. The company's “Shareholder Return Plan for the Next Three Years (2022 - 2024)” promises that the profit to be distributed in cash every year will not be less than 55% of the profit distributed to holders of other equity instruments such as perpetual bonds (if any) after deducting the net profit due to the current year. In 2023, the company plans to pay a cash dividend of 3,622 billion yuan, an increase of 1,061 billion yuan over the previous year, a record high since listing, with a dividend ratio of 4.7%.
Profit Forecasts and Investment Ratings
We estimate that the company's net profit for 2024-2026 will be 7.064 billion yuan, 7.806 billion yuan, and 8.549 billion yuan, respectively, corresponding to PE 11 times, 10 times, and 9 times, respectively. We believe that as a leading central enterprise in the industry, the company has excellent operation and management capabilities, and that it continues to have high dividends, may enjoy a certain valuation premium and maintain a “buy” rating.
Risk factors: Extended acquisitions fall short of expectations; traffic growth falls short of expectations; road rate policy fluctuations.