Leading passenger transportation company with stable performance and high dividends

Bohai Ferry is a leading passenger transportation enterprise owned by a state-owned company. It is mainly engaged in passenger transportation, cargo transportation, etc. In the Bohai Bay passenger transportation market, it has had the highest comprehensive market share for many years. In 2014-2019, Bohai Ferry's operating income and net profit to mother increased steadily, and passenger traffic, mainly by car, showed a trend of growth. In 2020-22, the pandemic led to a decline in the company's revenue and profits, and both rebounded sharply in 2023.

The company's performance is relatively stable, operating cash flow is good, existing ships are younger, and the possibility of large capital expenses is low, and it is expected that it will continue to maintain a high dividend ratio in the future.

Focus on the main business and divest international ferries and cruise ships

Bohai Ferry focuses on the main passenger transportation business, and the main business performance is relatively stable. Bohai Ferry promoted the upgrading of ship capacity, and passenger vehicle traffic increased from 2010 to 2019. In 2020, Bohai Ferry acquired Weihai Haida Passenger Transport, further consolidating the company's leading position. Bohai Ferry is actively expanding its cargo transportation business, attracting vehicles for transporting hazardous chemicals, trailers, etc., which is a strong complement to the passenger transportation business. Production and sales of new energy vehicles are booming, and it is expected to open up room for growth in the Bohai Sea ferry cargo transportation business in the future. Bohai Ferry's divestment of the marginally profitable international ferry and loss-making cruise business may increase the company's overall profit level.

Domestic ferry profits rebounded as prices made up

Economic growth in the traditional hinterland has decelerated, the travel structure of residents has changed due to the epidemic, demand in the Bohai Bay passenger market has shrunk, and Bohai ferry passenger traffic in 2023 is less than in 2019. Higher passenger fares for Bohai ferries hedged the decline in traffic volume, and profits rebounded sharply in 2023. Competition in passenger transportation in Bohai Bay is slowing down and cooperation is being strengthened, and the fare center is expected to move upward in the future. The impact of high-speed rail on ferry diversion has diminished marginally.

Compared to road transportation, fuel costs for ferries are lower, and fuel subsidies further enhance ferry economy.

However, fuel costs for new energy vehicles and heavy natural gas trucks are lower, and the cost advantage of ferry fuel consumption may weaken.

Profit forecast and target price

Earnings are expected to remain stable in 2024-2026. As the impact of the pandemic subsides and the economy recovers, the profitability of Bohai Ferry is expected to pick up. Assuming that the 2023 fuel subsidy is delayed until 2024, we expect the company's net profit to be 4.06, 3.85, and 387 million yuan respectively in 2024-2026.

Combined with the DDM valuation method and the comparable company Wind in 2024, the target price was 11.42 yuan, covered for the first time, giving a “buy” rating.

Risk warning: Risk of safe maritime transportation, risk of future business development and market development, risk of ticket price increases falling short of expectations, risk of fuel subsidy reduction, interest rate risk, exchange rate risk, stock price fluctuation risk. The calculation results are subjective.