Yuexiu Transport's net profit in 1H24 dropped 27% YoY to RMB314mn, 14% below our estimate. The miss was due to (1) lower-than-expected gross margin and (2) share of loss insured (RMB20mn) due to the expiration of concession right of Northern Ring Road starting from Mar 2024. Yuexiu Transport proposed interim dividend of HK$0.12/share, implying 58.5% dividend payout ratio (1H23: 53.8%). The Company expects an improvement of traffic in 2H24E, and expects a payout ratio target of 50-60% can be maintained. We are still positive on Yuexiu Transport, and expect asset injection from parent company to serve as a catalyst this year. Maintain BUY with an unchanged DCF-based TP of HK$5.9. n 1H24 results highlights. Revenue dropped 6% YoY to RMB1.82bn (~1% below our estimate). Gross margin narrowed 6.5ppt YoY to 50.1% (vs our estimate of 54.6%), due to operating deleverage. Profit from associates & JV dropped 41% YoY to RMB76mn, due to the expiration of concession right of Northern Ring Road in Mar 2024. Net finance expense dropped 14% YoY to RMB232mn, as effective interest cost reduced to 2.93% at end-Jun (vs 3.24% at end 2023). Net profit dropped 27% YoY to RMB314mn. Operating cash inflow dropped 12% YoY to RMB1.18bn. As at end Jun 2024, net debt/equity ratio was stable at 98.6% (vs 99% by end-2023).
Transfer of Northern Ring Road project. Yuexiu Transport reported RMB20mn share of loss as the concession right of Northern Ring Road project was expired on 22 Mar 2024. According to Yuexiu Transport, the transfer of the project is still in progress. Working force of the JV has been dismissed while the maintenance expense of the project is still borne by the JV.
Impact of the commencement of Shenzhen-Zhongshan Bridge. Humen Bridge contributed RMB46mn share of profit in 1H24 (+6% YoY). According to Yuexiu Transport, the traffic diversion from Humen Bridge hit 36% in the first week of the commencement (30 Jun) of Shen-Zhong Bridge, and reduced to 17-26% afterwards. The overall impact at present is 25%, which is better than the Company's previous expectation of 28%.
Capex guidance. Capex in 1H24 amounted to ~RMB300mn. Mgmt. guided a full year capex of RMB2bn (RMB1.7bn in 2H24E, comprising RMB1.2bn for the GNSR Expressway R&E project).
Key risk factors: (1) diversion of traffic from other parallel toll roads, (2) rebound of gearing ratio and finance expenses, and (3) uncertainties on the GNSR expansion project.
