Core views
1) The company is the core service provider for railways in the Greater Bay Area and can handle trains on routes other than its own, such as Beijing, Chongqing, Kunming, etc. to Hong Kong's West Kowloon. Benefiting from the increase in cross-line EMUs, the average revenue of long-distance riders in 2022 increased by 196.4% compared to 2019, and the addition of high-speed rail customer service equipment maintenance fee settlement revenue. 2023Q1's performance has surpassed 2019.
2) First growth curve: Hong Kong is connected to the national high-speed rail network. The Guangzhou-Kowloon Intercity Express has been upgraded to a high-speed rail direct bus. There is plenty of room for direct trains between the Mainland and Hong Kong in the future. It is estimated that with a passenger occupancy rate of 75%-80%, the total gross profit contribution of the company's Beijing-Kowloon and Jongjiu high-speed rail direct trains will reach 850 million yuan to 960 million yuan.
3) Second growth curve: After the renovation and expansion of Guangzhou Railway Station and Guangzhou East Railway Station is completed, the company's long-distance bus business has huge room for growth. It is estimated that with a passenger occupancy rate of 70%, the company will contribute about 527 million yuan in gross profit for each additional 10-to-8 high-speed long-distance train, and about 1,279 billion yuan for each additional 10-to-16 high-speed long-distance train.
4) Pay attention to the value of high-speed rail networking. The opening of high-speed rail lines with a speed of 300 km/h or more, such as the Guangzhou-Shantou High Speed Rail and the Guangzhan High Speed Rail in 2023-2024, is expected to lead to the expansion of the company's cross-line train fleet.
5) Net profit attributable to the mother for 2023-2025 is estimated to be 1,415 million yuan, 1,717 million yuan and 1,989 million yuan, corresponding to PB 1.11, 1.07 and 1.04 times. Referring to the historical average valuation of international peers and companies, the PB of A shares was selected 1.5 times, based on net assets of 3.66 yuan per share in 2023, corresponding to the target price of A shares of 5.49 yuan; the PB of Hong Kong stocks was selected 1.0 times, corresponding to the target price of Hong Kong stocks of HK$4.06.
The core service provider of railways in the Greater Bay Area. The inflection point of profitability is now the only listed company under the Guangzhou Railway Group. The company has 481.2 km of Shenzhen-Guangzhou-Pingshi railway assets, is responsible for operating intercity trains between Guangzhou and Shenzhen, direct trains across the port, and various long-distance passenger trains (including trains on non-own routes such as Beijing-Kowloon and Chongjiu), while also providing railway operation services for many main lines in Guangdong Province. Benefiting from the increase in cross-line EMUs, the average revenue of long-distance passengers in 2022 increased by 196.4% compared to 2019, and revenue from the settlement of high-speed rail transportation capacity guarantee fees and customer service equipment maintenance premiums were added.
Net profit for Q1 2023 rose sharply to $400 million, while passenger traffic only recovered to 54.2% in 2019. The company's performance for the third quarter of 2016-2017 was often the highest in a single quarter of the year. Focus on the company's performance during the peak travel season in Q3 2023.
Hong Kong is connected to the national high-speed rail network, and the direct bus business opens the first growth curve. In September 2018, the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong High Speed Rail was opened. Hong Kong was connected to the national high-speed rail network, and the number of people arriving at the West Kowloon High Speed Rail Control Point increased significantly. The service at Hong Kong Hongkan Station continued to be suspended in January 2023, with subsequent or permanent suspension of operation. Currently, the Guangzhou-Kowloon Intercity Express has been upgraded to a direct high-speed rail service that passes through the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong High Speed Rail. There is plenty of room for direct service between Hong Kong and the Mainland in the future. We expect that with a passenger occupancy rate of 75%, the total gross profit contribution of all the Beijing-Kowloon and Jongjiu high-speed rail direct trains that the company is currently responsible for operating will be 851 million yuan; with a passenger occupancy rate of 80%, the total gross profit contribution of all of the company's Beijing-Kowloon and Jongjiu high-speed rail direct trains will be 958 million yuan.
After the renovation and expansion of Guangzhou Railway Station and Guangzhou East Railway Station is completed, the high-speed rail long-distance bus business opens a second growth curve. Guangzhou Baiyun Station is expected to open and operate by the end of 2023, and will undertake all general speed train services at Guangzhou Station and Guangzhou East Railway Station. According to the “Guangdong Province 2023 Key Construction Project Plan”, the renovation and expansion of Guangzhou East Railway Station is expected to take place in 2023-2026. As of the end of May 2023, the number of regular speed trains running at Guangzhou Railway Station and Guangzhou East Railway Station was 71-75 and 27-28, respectively. Subsequent general speed trains may all be replaced by high-speed trains. We expect that with a passenger occupancy rate of 70%, the company's gross profit for every 10 to 8 additional high-speed rail long-distance trains will contribute about 527 million yuan, and each additional 10 pairs of 16 high-speed rail long-distance trains will contribute about 1,279 billion yuan. After the subsequent renovation and expansion of Guangzhou Railway Station and Guangzhou East Railway Station is completed, the company's high-speed long-distance trains will increase the company's performance.
Pay attention to the value of high-speed rail networking, and the high-speed rail network in Guangdong Province continues to be encrypted
The opening of high-speed rail lines with a speed of 300 km/h or more, such as the Guangzhou-Shantou High Speed Rail and the Guangzhan High Speed Rail in 2023-2024, is expected to lead to the expansion of the company's cross-line train fleet. The Guangzhou-Shantou high-speed railway is expected to open on September 30, 2023. It is expected to operate 100 pairs/day for the Guangzhou-Huizhou section and 54 pairs/day for the Huizhou-Shanwei section. The Guangzhan High Speed Rail is expected to open in 2024, and the number of passenger trains in 2030 is expected to be 55-64 pairs/day. At the same time, the company has a cargo yard and yard area of 975,000 square meters. Idle land resources are expected to be effectively reused, and land storage may contribute additional profits.
Investment advice
The company's revenue for 2023-2025 is estimated to be 26.176 billion yuan, 28.294 billion yuan and 29.410 billion yuan, net profit of 1,415 billion yuan, 1,717 million yuan and 1,999 million yuan, corresponding EPS of 0.20 yuan, 0.24 and 0.28 yuan respectively, corresponding PE is 20.28, 16.71 and 14.43 times, corresponding PB is 1.11, 1.07 and 1.04 times. Referring to the historical valuation levels of international peers and the company, the PB of A shares was selected 1.5 times, based on the company's net assets of 3.66 yuan per share in 2023, corresponding to the target price of A shares of 5.49 yuan; the PB of Hong Kong stocks was selected 1.0 times, corresponding to the target price of Hong Kong stocks of HK$4.06.
Risk warning
1) The risk of changes in passenger and freight volume due to macroeconomic cycle fluctuations; 2) the risk of changes in railway freight policies; 3) the risk of profits falling short of expectations after the renovation and expansion of Guangzhou Railway Station and Guangzhou East Railway Station; 4) Diversion risk of other transportation channels