Incidents:

On August 23, 2024, Shenzhen Express released the 2024 semi-annual report:

With 2024H1, the company achieved operating income of 3.757 billion yuan, a year-on-year decrease of 8.92%, completed net profit of 7.74 yuan, a year-on-year decrease of 16.72%, and completed deducted net profit of 0.673 billion yuan, a year-on-year decrease of 16.33%.

Among them, in 2024Q2, the company achieved operating income of 1.719 billion yuan, a year-on-year decrease of 22.62%; completed net profit of 0.303 billion yuan, a year-on-year decrease of 37.77%; and completed deducted non-return net profit of 0.271 billion yuan, a year-on-year decrease of 26.29%.

Investment highlights:

The exclusion of 2024H1 affected the year-on-year decline in road fees by 1.5%, and environmental protection depreciation of 0.133 billion yuan 2024H1. The company achieved operating income of 3.757 billion yuan, a year-on-year decrease of 8.92%. The main factors were road fee revenue, construction service revenue under franchise arrangements, and contract construction service revenue. Among them, the toll road sector achieved revenue of 2.434 billion yuan, a year-on-year decrease of 6.35% due to the impact of factors such as abnormal weather and a 3-day increase in the number of free days compared to the same period of the previous year. Excluding the impact of the Yichang project, 2024H1's toll roads fell 1.5% year over year.

On the cost side, the company's 2024H1 financial expense ratio was 14.9%, down 1.2 pcts year on year. The main reason is that the RMB depreciation rate in the current period was lower than the same period last year, reducing exchange losses by 0.08 billion yuan to 0.025 billion yuan year on year. However, due to a reduction in the value of the company's environmental protection sector of 0.133 billion yuan, an increase of 0.076 billion yuan over the previous year, which had a certain impact on the company's performance, the company finally completed net profit of 7.74 yuan to mother in 2024H1, a year-on-year decrease of 16.72%, and completed deducted net profit of 0.673 billion yuan.

Outer Ring Phase III and aircraft load improvement and expansion projects continue to advance, and the Shenzhen-China Channel drainage has increased. The company is actively promoting the construction of major new construction, renovation and expansion projects such as Outer Ring Phase III and the Locomotive Expressway to continuously supplement the company's high-quality highway assets. Among them, the company plans to raise no more than 4.9 billion yuan in total through fixed increases for investment and construction of outer ring projects and repayment of interest-bearing liabilities. The issuance application was accepted by the Shanghai Stock Exchange on May 22, 2024.

On June 30, 2024, the company successfully completed the simultaneous opening of the second phase along the river and the Shenzhen-China Corridor, which had a positive effect on the operating performance of the company's riverside expressway and high-speed locomotive.

Judging from data from July and early August 2024, the opening of the Shenzhen-China Corridor increased traffic flow in the first phase along the river by 15%, and the increase in traffic flow on high-speed locomotives reached 7%. Although the opening of the Shenzhen-China Corridor has had a certain diversion impact on the Guangzhou-Shenzhen Expressway and the Outer Ring Expressway, it has had an overall positive impact on the company's operations.

Profit forecast and investment ratings We expect Shenzhen Express's 2024-2026 revenue to be 9.065 billion yuan, 10.098 billion yuan, and 10.384 billion yuan, respectively, -2%, +11%, and +3% year over year; net profit to mother will be 2.048 billion yuan, 2.251 billion yuan and 2.356 billion yuan, respectively, -12%, +10%, +5%, corresponding EPS of 0.94 yuan, 1.03 yuan, 1.08 yuan, corresponding PE is 10.24 times, 9.32 times, and 8.91 times, respectively. The main highway business is developing steadily. As the second main business, the environmental protection business has extensive space and is covered for the first time, giving it an “increase in weight” rating.

Risks indicate road network competition risks; risk of changes in charging policies; risk of environmental protection business development falling short of expectations; risk of rapid renovation and expansion falling short of expectations; and exchange rate risk.