Brief performance review

On August 29, 2024, Shenzhen International released its 2024 semi-annual report. 1H2024 achieved operating income of HK$6.61 billion, a year-on-year decrease of 4.5%; net profit to mother of HK$0.653 billion, an increase of 609.1% year-on-year.

Management analysis

The profit of the logistics business increased significantly year-on-year, confirming the revenue from the issuance of REITs. 1H2024's net profit to mother increased by 609.1% year on year. By sector: 1) The logistics park business achieved profit attributable to shareholders of HK$0.563 billion, an increase of 44% over the previous year. It mainly benefited from the company's successful placement of the Hangzhou Phase I Project and the Guizhou Longli Project into the Huaxia Shenzhen International REIT, which confirmed that the after-tax revenue was approximately HK$0.587 billion. 2) In terms of road business, Shenzhen Expressway's contribution should account for HK$0.431 billion in profit, a year-on-year decrease of 20%, mainly due to the Shenzhen Expressway's environmental protection business calculation and impairment preparations, etc. 3) The port business achieved revenue of HK$1.602 billion, an increase of 21% over the previous year, mainly due to the company continuing to extend the port operation industry chain and strengthening project linkages. The profit attributable to port business shareholders was HK$43.67 million, a year-on-year decrease of 13%, mainly due to intense competition.

Financial costs have been drastically reduced, and fair value losses have been confirmed. 1H2024's net financial costs were $0.858 billion, a year-on-year decrease of 40.6%, mainly due to the company's measures to reduce the impact of exchange rate fluctuations, resulting in an exchange loss of HK$26.2 million, a decrease of HK$0.584 billion over the previous year.

Furthermore, the company closely monitors exchange rate trends, continuously optimizes debt periods and currency structures, continuously reduces the size of foreign currency loans, locks in preferential interest rates, and further reduces financial costs. The company's operating profit was approximately HK$1.686 billion, down 20% year on year, mainly due to the Group's logistics business confirming a fair value loss of HK$0.209 billion and an increase in operating costs due to the nurturing phase of several new logistics port projects put into operation.

The focus is on promoting the South China Logistics Park project, and the scale of the logistics business continues to grow. 1H2024, the transformation and upgrading of the Shenzhen International South China Logistics Park has made a series of phased progress, and various tasks are progressing in an orderly manner. In the second half of the year, the company will hurry up the time window, focus on promoting the transformation of the first phase of the Shenzhen International South China Logistics Park, and strive to sign the first land contract within the year. The scale of the company's logistics business continues to grow, with a new operating area of about 0.25 million square meters, including the Shenzhen Yantian Project, the Hainan Chengmai Project, and the Hainan Yangpu Project. The company will also make every effort to guarantee the investment promotion and operation of projects such as the Qianhai Yidu Building, Qianhai Yinli, Shenzhen International South China Digital Valley, and Shijiazhuang Zhengding, and actively seek a breakthrough in the land replacement for Unit 20 of the Qianhai Transformation Phase III Project.

Profit Forecasts, Valuations, and Ratings

Maintain the 2024-2026 net profit forecast of HK$2.76 billion, HK$3.41 billion, and HK$3.86 billion. Maintain a “buy” rating.

Risk warning

Land confirmation falls short of expectations; risk of a sharp drop in housing prices in Shenzhen; risk of falling rent in logistics parks; risk of exchange rate fluctuations; risk of mergers and acquisitions falling short of expectations; risk of asset impairment.