Shenzhen Port Group's high-quality port assets were injected, and the company's business structure and profitability were significantly optimized.

In 2023, the company acquired 100% of the shares of Yangang Operation Company, which held 35% of Yantian Phase III shares and 100% of Shenzhen Investment. Among them, Yantian Phase III has 11 10-200,000 ton container berths with an annual transit capacity of 8.53 million TEUs. The throughput in 2021 and 2022 reached 851 and 8.12 million TEUs respectively, and the capacity utilization rates were 99.7% and 95.6% respectively, which is at a high level. Yantian Phase III achieved net profit of 1.72 billion yuan in 2023, 35% of which was 600 million yuan, equivalent to 48.4% of the company's total profit in 2023. After the transaction was completed, the company's profitability was greatly increased. Yantian Phase III has significant synergy with the company's existing port business, which helps the company improve its geographical layout and expand its business scale and market share.

The company strengthened port investment layout, actively promoted business model innovation, and achieved rapid growth in self-operated port throughput. In 2023, the company's own port completed a throughput of 454.95 million tons, an increase of 10.4% over the previous year, and achieved revenue of 570 million yuan. Among them: (1) Huangshi Xingang strengthened the iron ore mixing operation model and vigorously developed multimodal transportation, with a throughput of 31.28 million tons in 2023, an increase of 6.9% over the previous year. With the commissioning of the third phase of the project, throughput capacity will be further enhanced; (2) Huizhou Tsuen Wan Coal Port enhances foreign trade coal carrying capacity and deepens port railway cooperation to increase traffic volume. The throughput in 2023 was 9.27 million tons, an increase of 10.5% over the previous year; (3) Xiaomo Port pioneered automobile roll-over, domestic and foreign trade routes for containers, etc., and continued to diversify business types in 2023. Volume 1,262,000 tons With a year-on-year increase of 77%, it has completed the export of 20,000 vehicles and a container throughput of 55,000 TEUs. Currently, the project is still in the market development stage, and it is expected to achieve relatively rapid growth in the future as the automobile role-loading business progresses.

The highway business provides a stable source of cash flow, and is expected to unlock new growth potential after the Huiyan Expressway renovation and expansion. The company started the renovation and expansion project of the Shenzhen section of the Huiyan Expressway in 2017, and obtained approval for a 25-year toll period in 2022. The upper limit of road traffic after the renovation and expansion will be raised, and there is also an opportunity to raise the toll rate from the original 0.45 yuan/standard vehicle kilometer to 0.6 yuan/standard vehicle kilometer. Furthermore, the Shenzhen-China Corridor is scheduled to be completed in 2024. After the opening of traffic, the traffic distance between Shenzhen and Zhongshan will be drastically shortened. The Huiyan Shenzhen section, as a connecting section east of the Shenzhen-China Corridor, will benefit from the increase in traffic brought about by it.

Investment advice: First coverage, with an “increase in weight” rating. We expect Yantian Port's revenue in 2024-2026 to be 1,068 billion yuan, 13.35 billion yuan, and 1,515 billion yuan, respectively; net profit to mother will be 10.48, 11.45, and 1,194 billion yuan. According to the company's closing price on June 19, 2024, the corresponding PE for 2024-2026 was 18.7, 17.1, 16.4 times, and PB (LF) was 1.5 times, respectively. We selected SIPG Group, China Merchants Port, Qingdao Port, and Tangshan Port, which also focus on port operations, as comparable companies. The company's historical data in terms of PE and PB has always been higher than the average of comparable companies. We believe: ① Since the proportion of the company's total assets under construction is significantly higher than that of its peers, it means that the potential for future capacity expansion is stronger; ② Yantian Port is a container port, and its profitability is significantly higher than that of its peers, so the company's valuation has a certain premium over its peers. Considering the significant increase in profitability after the restructuring of the company's assets, and the company's continuous strengthening of the port investment layout, throughput is expected to grow steadily. After the Huiyan Expressway renovation and expansion, it is expected to release new growth potential, cover for the first time, and give it an “increase in wealth” rating.

Risk warning: Risk of shareholding operations, risk of cyclical macroeconomic fluctuations, risk of exchange rate fluctuations.