South China Railway is the leader in passenger transportation, and revenue is growing steadily

The Guangzhou-Shenzhen Railway mainly operates railway passenger and cargo transportation services and direct transit services. At the same time, it has also been commissioned to provide railway operation services for other domestic railway companies such as the Wuhan-Guangzhou Railway and the Guangzhou-Shenzhen-Hong Kong Railway. In 2014-19, with the expansion of road network clearing and other transportation services, its revenue share trend increased markedly. It has become a new business growth point for the company, boosting steady growth in revenue. In 2023, the passenger transport business and road network clearing business contributed to the company's main revenue sources, accounting for 40.95% and 46.17% of total revenue, respectively.

Costs fluctuated slightly, slightly hampering short-term results

2024Q1-3 achieved revenue of 20.03 billion yuan, a year-on-year increase of 4.4%, net profit to mother of 1.209 billion yuan, an increase of 18.7% year-on-year, and net profit after deducting non-attributable net profit of 1.194 billion yuan, an increase of 19.5% year-on-year.

2024Q3, the Guangzhou-Shenzhen Railway's revenue increased 4.5% year on year, and operating costs increased 5.5% year on year. The cost increase was greater than the increase in revenue, or was related to the continuous increase in the number of high-speed rail services of the Guangzhou-Shenzhen Railway, which led to a sharp increase in the cost of high-speed rail equipment leasing and service fees over the same period last year.

Passenger transport products will improve quality and efficiency. We expect high-speed rail transformation to release profit flexibility and improve the quality and efficiency of long-distance passenger transport products. With the Gan-Shenzhen high-speed railway put into operation and the company's Guangzhou-Shenzhen intercity connection, the railway transportation network in central China, the Yangtze River Delta and the Pearl River Delta will be further optimized, and the company has added long-distance trains to the Ganshen Railway, and the per capita fare and revenue for long-distance buses will grow rapidly. On the fare side, the Guangzhou-Shenzhen Railway continues to enrich its cross-line train layout, and is expected to enjoy the dividends of the market-based reform of China's EMU and high-speed rail fares. In the future, the company will operate the Guangzhou-Shenzhen Intercity Line, which is the main rail line passing through Guangzhou Central Railway Station - Guangzhou East. The long-term positioning of Guangzhou East Railway Station as the main high-speed rail may further drive the company's railway operation services into the high-speed rail sector, and the company's profit level is expected to increase.

Adjust profit forecasts

In view of the high-speed rail transition period, or revenue side turbulence, the 2024 forecast net profit to mother was lowered to 1.386 billion yuan (the original forecast was 1.683 billion yuan), the predicted net profit to mother for 2025 was lowered to 1.531 billion yuan (originally forecast 1.928 billion yuan), and the 2026 forecast net profit to mother was introduced to maintain the “holding” rating.

Risk warning: macroeconomic risk; risk of policy and regulation; impact of diversion of new routes; passenger traffic volume of self-operated routes falling short of expectations; risk of stock price changes.