Core view: After deducting the decline in non-net profit in 1Q, REIT contributed to non-recurring revenue of Wantong Express achieved revenue of 1.29 billion yuan (yoy +12.4%) in Q1 of 2024, net profit of 460 million yuan (yoy +0.05%), deducted non-net profit of 434 million yuan (yoy -7.6%); net profit to mother was slightly lower than our expectations (483 million yuan). The decline in non-net profit after deducting 1Q was mainly affected by free days, bad weather, and high base. The company holds a 3.89% share ratio of CICC Anhui Traffic Control REIT. REIT recorded fair value change income and dividend investment income of about 38 million yuan in 1Q (1Q '23 was a loss of about 15 million yuan).
Taking into account 1Q results and the slowdown in truck growth since April, we lowered 2024/25/26 net profit to mother of 18.0/18.5/2.0 billion yuan (previous value: 18.9/19.4/2.09 billion yuan). We are still based on the DCF valuation method. WACC uses 6.41%/8.14% (previous value: 6.41%/8.01%) to give A shares/H shares a target price of 15.4/HK$14.0 (previous value: HK$15.7/HK$14.5) to maintain a “buy”.
The number of free days in 1Q increased by 2 days year-on-year, and bad weather in central China affected transportation companies' 1Q toll revenue by 8% year-on-year, mainly due to: 1) the number of free passenger bus days increased by 2 days year on year, and during the Spring Festival return period when traffic was high; 2) Central China was affected by snow and ice disasters around the Spring Festival; 3) the traffic base for the same period last year was high. Road freight volume in Anhui Province increased 6.0% year on year in January-January, slightly lower than the country's overall growth rate of 1.8 percentage points (Ministry of Transport). Looking at road segments, the Hening Expressway and Lianhuo Expressway networks are stable, and changes in revenue mainly reflect the effects of these factors. The 1Q Hening Expressway toll (34% of the total) decreased by 4% year on year, and the Lianhuo Expressway toll (7%) decreased by 7% year on year.
Xuanguang/Guangci revenue declined due to the decline in revenue from renovation and expansion, and the Gaojie/Anqing Bridge/Yuewu road network was affected by the renovation and expansion. Some sections of the road were closed, and 1Q toll revenue (9% in total) decreased by 47% and 34%, respectively. As a result of the opening of the Yuewu East Extension Line (October 23), 1Q Yuewu Expressway toll revenue (7% of total) increased 59% year on year; at the same time, the road network changes diverted traffic from the High Level Expressway and Anqing Bridge. 1Q High Edge Expressway toll revenue (21% of the total) fell 13% year on year, and the Anqing Bridge toll revenue (8% of the total) decreased 13% year on year. The 1Q Ningxuanhang toll (9% of the total) increased 60% year over year, continuing to benefit from the completion of the Jiangsu/Zhejiang section in September/December '22.
Road costs are relatively stable, and financial expenses are reduced due to falling interest rates. After excluding the impact of the increase in PPP construction service costs for Xuanguang renovation and expansion, 1Q highway business costs are relatively stable. Due to lower LPR interest rates, 1Q financial expenses fell 40% year over year to $0.12 billion. CICC Anhui Traffic Control REIT contributed the main non-recurrent income. The total fair value change income and dividend investment income of 1Q in '24 was about 38 million yuan, while 1Q '23 generated fair value change losses of about 15 million yuan (no dividends for the same period in '23). Truck traffic growth has been slowing since April. National highway truck traffic increased 0.8% year-on-year from 4/1-4/21 (Ministry of Transport), which is slower than the 3.5% year-on-year growth rate in January-March. It may be related to differences in the number of Qingming holiday days, economic conditions, and profit expectations of industrial enterprises.
Risk warning: willingness to travel has declined, road network changes have exceeded expectations, capital expenditure has exceeded expectations, and rates have been lowered.