Shenzhen's international full-chain logistics model is developing, and the dividend payment policy is stable. In 2000, Shenzhen Investment Holdings Co., Ltd. completed the acquisition of the company. Currently, the actual controller is the Shenzhen State-owned Assets Administration Commission, which holds 44.24% of the shares. The company focuses on the core location of economically developed regions such as the Greater Bay Area, Yangtze River Delta, Beijing-Tianjin-Hebei, etc., continuously consolidating logistics assets and expanding the scale of operations through self-construction and acquisitions, and building a logistics infrastructure network covering the entire “water, land, air and rail” business format. Currently, all logistics application scenarios have a layout. The logistics node network includes inland waterway terminals, land logistics parks, air cargo terminals, and railway cargo terminals. Currently, the core business is toll roads and environmental protection and modern logistics. Among them, toll roads and major environmental protection businesses are mainly operated by the holding subsidiary Shenzhen Expressway. Toll roads and environmental protection revenue in 2023 account for about 50%. Modern logistics includes logistics park operations, logistics services and port revenue, accounting for about 23%. The company's dividend policy is relatively stable. The dividend payment rate for 2017-2023 is around 50%, and the total dividend payout for 2017-2023 reached HK$12.4 billion.

Logistics business: Operating core warehousing assets, transformation and upgrading to provide performance flexibility. From the perspective of business segmentation: 1) “Investment, construction and finance management”:

The company is deeply involved in the field of logistics warehousing, develops and operates logistics warehousing projects, and realizes profits through rental income and asset disclosure. Currently, the operating area of the logistics park is only 44% of the planned area, and it is still in the growth stage. With the gradual implementation of logistics park projects, the production of mature parks progresses in an orderly manner, and it is expected that logistics operating income will achieve steady growth. 2) “Investment, construction, management and transfer”: Some of the company's projects have opportunities for transformation and upgrading, land appreciation, and flexible profits from development and operation. The company's Qianhai project brought the company a total revenue of about 14.2 billion yuan in 2017-2023. In 2023, the company's South China Logistics Park signed land preparation agreements with the Longhua Development Bureau and others. Using the Qianhai project as a reference, the South China Logistics Park project is expected to contribute a large profit increase. 3) Port business: The company operates inland ports and provides supply chain logistics services. The commissioning of ports such as Jingjiang by the end of 2023 is expected to ensure the steady growth of port business.

Toll roads and environmental protection: The company holds Shenzhen Expressway, the highway business is operating steadily, and the environmental protection business is increasing. The toll road business and environmental protection business are managed by Shenzhen Expressway, a listed company under the company. The company holds approximately 51.56% of Shenzhen Expressway's shares. 1) Shenzhen Expressway is the leading highway in South China. It holds 16 highways. Profitability is stable. Excluding the impact of the epidemic, the company's gross toll profit fluctuates around 50%. In 2023, the economy recovered and traffic resumed growth. Shenzhen Expressway contributed about HK$1 billion to the mother's net profit, +54% over the same period last year. With the development of the Bay Area economy, toll road profits are expected to grow steadily as traffic volume increases, and the commissioning of the Riverside Phase II and Outer Ring Phase III projects is expected to contribute to the increase. 2) Since 2017, Shenzhen has developed large-scale environmental protection businesses. The environmental protection industry has franchise attributes. The company relies on capital advantages to invest and acquire environmental protection businesses and provide performance increases.

Other investments: Waiting for Shenzhen Airlines' profit recovery. The company's other investments are affected by multiple factors, including the Group's own expenses and the profit contributions of participating companies. With the gradual withdrawal of some of the company's other investments, Shenzhen Airlines became an important factor affecting profits in 2020-2022. According to the company's announcement, according to the Equity Law, since the company's equity in Shenzhen Airlines has been reduced to zero (2022), the company will not confirm further losses. With the gradual recovery of the aviation market in the future, Shenzhen Airlines is expected to reverse losses and contribute to the company.

Profit forecast and rating: The main core logistics business is growing steadily, highway and port businesses are releasing stable profits, South China Logistics Park development provides profit growth, and the company's value is highlighted by the increase in dividends. We expect net profit to be HK$3.08, 4.02 and 4.25 billion in 2024-2026, with growth rates of 61.9%, 30.5% and 5.8%, respectively. The PE corresponding to the current stock price is 5.0, 3.8, and 3.6, respectively. Refer to the valuations of comparable companies such as the Jiangsu Ning—Shanghai Expressway, the Zhejiang Shanghai-Hangzhou—Hangzhou Expressway, the Anhui Wantong Expressway, and the Sichuan-Cheng-Chongqing Expressway. The company's valuation is low, and the value is prominent with increased dividends. For the first time, it was covered to give a “buy” rating.

Risk warning: Logistics park project progress or asset securitization progress falls short of expectations; transformation and upgrading progress falls short of expectations; highway traffic needs to be restored; risk that assumptions and profit predictions fall short of expectations; risk that dividends fall short of expectations; risk that the benefits of transformation and upgrading projects fall short of expectations. Ward