1Q24 results fell short of our expectations
The company announced 1Q24 results: revenue of 4.53 billion yuan, down 11.9% year on year after retroactive adjustment due to the company's merger with the Information Group; net profit to mother was 770 million yuan, down 6.7% year on year after retroactive adjustment, lower than our expectations, mainly due to the decline in the company's toll road business revenue.
Development trends
Toll revenue declined year on year, and the investment sector performed steadily. By sector, 1) Road and bridge operations:
1Q24 achieved toll revenue of 2.26 billion yuan, a year-on-year decrease of 12.2%. Among them, toll revenue for the Jiqing Expressway, the core road decreased by 14.4% year on year. The main reasons were: ① there was more rain and snow compared to the same period in previous years; ② minibuses were free for 9 days during the 2024 Spring Festival, 2 more days than in previous years; ③ the Jiqing Middle Line was opened to traffic and diversion.
2) Investment and operation: 1Q24 achieved investment income of 320 million yuan, a year-on-year increase of 6.2%, and steady growth.
3) Rail Transit Group: Achieved revenue of 970 million yuan in 1Q24, a year-on-year decrease of 14.2%, and net profit of 66 million yuan, a year-on-year decrease of 22.7%.
Short-term performance is under pressure from renovation and expansion and road network changes, and we are optimistic about the growth of the main business in the medium to long term. In the short term, some of the company's road products have been affected by changes in the road network, and toll revenue has declined, and the Beijing-Taiwan Expressway Qiji renovation and expansion project and the Jihe Expressway renovation and expansion project are ongoing, and traffic traffic has been adversely affected to a certain extent. However, referring to the boosting effect of the company's Jiqing Expressway and the Beijing-Taiwan Expressway after the completion of the renovation and expansion of the Deqi and Jitai sections of the Beijing-Taiwan Expressway, and at the same time making a significant incremental contribution to the company's performance, we believe that with the opening of the Beijing-Taiwan Expressway Qiji section and the Jihe Expressway (according to the company announcement, the Jihe Expressway is expected to open to traffic by the end of this year), the company's performance is expected to grow further in the medium to long term.
The dividend policy is steady to guarantee reasonable returns to shareholders. According to the company's announcement “Shandong Expressway Co., Ltd. Shareholder Return Plan for the Next Five Years (2020-2024)”, the dividend ratio for the next five years will not be less than 60%. Even if the performance is pressured by the pandemic in 2020-2022, the company guarantees that the dividend per share will not decline. We believe that the company's steady dividend policy can effectively guarantee investors' absolute returns.
Profit forecasting and valuation
As the company's toll revenue growth was lower than expected, we lowered our 2024/2025 net profit by 3.6%/4.0% to 3.483 billion yuan/38.24 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 12.4 times/11.3 times. Maintaining an industry rating and a target price of 10.01 yuan, corresponding to 13.9 times the price-earnings ratio of 2024 and 12.7 times the price-earnings ratio of 2025, there is 12.2% upside compared to the current stock price.
risks
The progress of the renovation and expansion fell short of expectations, and the economic growth rate fell short of expectations.