Affected by the epidemic, the performance was lower than expected; the dividend yield was attractive and maintained "buy".
Shenzhen International's 2020 net profit fell 20.2 per cent year-on-year to HK $4.007 billion, while revenue rose 15.7 per cent to HK $19.452 billion. Net profit is 23% lower than Huatai's forecast. The impact of COVID-19 's epidemic on Shenzhen's international toll roads, air transport and logistics business is greater than we expected. We lowered the 2021 / 2022 net profit forecast by 2.9% / increased by 56.7% to HK $3.738 billion / 4.357 billion, and introduced the 2023 net profit forecast of HK $3.264 billion. We reduce the target price based on the SOTP method by 1% to HK $18.20. The Shenzhen International Board of Directors plans to pay a dividend of HK $0.96 per share in 2020, with a dividend yield of 7.6% (as of March 26). We believe that the transformation and upgrading of logistics parks such as Qianhai, Meilinguan and South China Logistics Park projects are expected to continue to increase profits. Maintain "buy".
The epidemic has had an impact on the net profits of most international sectors in Shenzhen.
In 2020, the COVID-19 epidemic dragged down the profits of almost all sectors of the company. Shenzhen's international toll road net profit fell 27% to HK $938 million, mainly due to the implementation of the toll-free policy and the one-time deferred income tax assets recorded in 20 years. Net profit in the logistics business fell 27 per cent to HK $1.179 billion, mainly due to the implementation of epidemic prevention and control measures and rent waiver schemes, as well as indemnificatory apartment's confirmation that the increase in low profit margins led to lower profit margins and curbed net profit growth. In addition, Shenzhen Airlines (Shenzhen Airlines) brought a loss of HK $1.179 billion to Shenzhen International (2019 profit: HK $593 million). But we believe that as the epidemic abates, these businesses will recover and return to growth.
Focus on the transformation and upgrading of logistics park
On the other hand, the company recognized the proceeds of HK $4.094 billion from three land use right transfer agreements for the Qianhai project. The first phase of Qianhai project is expected to record considerable investment income in 2021. The construction and pre-sale of the third phase of the Meilinguan project began in December 2020. In addition, the company has signed a strategic cooperation framework agreement on the transformation of South China Logistics Park. Overall, Shenzhen International has a large number of logistics parks in the heart of Shenzhen. We believe that the transformation and upgrading of the logistics park is expected to become a continuous driving force for profit growth.
Risk tips: 1) economic downturn; 2) the impact of the epidemic is more serious than expected; and 3) the transformation and upgrading of the logistics park business development is not as expected.