Main points of investment
Highway toll business is the main business. The main profit of the company comes from the investment income of two joint ventures with Guangdong Highway Construction Co., Ltd. the main operating assets of the joint venture are the Guangzhou-Shenzhen Expressway and the West Coast Highway of the Pearl River Delta (divided into Western Line I, II and III). In fiscal year 2016, the toll income of the joint venture company was 2.002 billion yuan, an increase of 4.3% over the previous year, of which the Guangzhou-Shenzhen highway contributed 74% and the western route of the Pearl River Delta contributed 26%. The net profit of the joint venture company was 611 million yuan, an increase of 20.5% over the previous year.
Guangzhou-Shenzhen Expressway assets are of high quality, which is the main source of profit for the company. In 2016, the revenue of Guangzhou-Shenzhen Expressway reached 1.48 billion yuan, an increase of 2.9% over the previous year, and the compound growth rate in the past three years was 0.2%.
The location advantage of Guangzhou-Shenzhen highway is excellent, the traffic flow and income per kilometer are in the forefront of the country, and the asset profitability is very strong. In the past few years, the negative impact of the reduction in rates and the policy of free access for cars such as holidays on income has been basically released, and it is expected that the steady rise in traffic in the future will ensure a steady rebound in Guangzhou-Shenzhen high-speed profits.
The road on the west coast of the Pearl River Delta will turn from deficit to profit, which will be a strong growth point for the company's performance in the future. In fiscal year 2016, the toll income of the West Bank trunk road reached 523 million yuan, with a compound growth rate of 16.2% in the past three years, and a net profit of 40 million, turning losses into profits. The future opening of the Hong Kong-Zhuhai-Macao Bridge, the development of the Hengqin Development Zone in Zhuhai and the construction of Macau gaming resorts and hotels will continue to promote the growth of the performance of the West Coast Trunk Road in the Pearl River Delta.
Investment strategy: a very high dividend payout rate ensures a sound investment return. In recent years, the dividend payout rate of the company has reached more than 97%, and there are also irregular large special dividends. The superimposed sound performance of the ultra-high dividend payout rate ensures a sound investment return on the company's stock. At present, the DCF valuation method of the company estimates that the reasonable share price of the company should be HK $5.6. using the dividend yield valuation method, under the assumption that the target dividend yield is 4.5% and the dividend payout ratio is 98%, the reasonable share price of the company should be about HK $4.50, which has 10% room for increase compared with the current HK $4.1.
We expect the company's EPS to be 0.19,0.20,0.22 yuan in fiscal year 17-19, giving the "overweight" rating for the first time.
Risk tips: affected by macro factors, the decline of traffic flow, changes in charging policies, changes in exchange rates, etc.