Profit remained flat at HK$3.35 billion in 2019, in line with expectations. Revenue in 2019 increased 6.4% year over year to HK$32.345 billion, while profit increased by only 0.5% year over year to HK$3.35 billion. During the period, the company's infrastructure sector revenue rose 3.3% year on year to HK$9.094 billion, while revenue from the real estate and consumer goods sectors increased 8.4% and 4.5% year on year respectively to HK$18.65 billion and HK$4.602 billion. Judging from the profit contribution in 2019, the infrastructure sector/ real estate sector/ consumer goods sector contributed 48.2%/21.4%/30.3% of the profit during the period, respectively.

Revenue from roads and bridges is expected to decline in 2020. In February 2020, the Chinese government requested that during the COVID-19 epidemic prevention and control period, toll roads nationwide be exempt from vehicle tolls until the epidemic prevention and control work was completed. The company's toll road revenue is expected to record a significant decline in 2020. We expect toll road and bridge revenue to record a 23.7% year-on-year decline in 2020, but a 37.2% year-on-year revenue rebound in 2021. Given that revenue from the water business is expected to grow 12.0% year over year in 2020, overall revenue from the infrastructure sector is expected to remain the same year on year in 2020, even in a context where road revenue will record a decline. Revenue from the infrastructure sector is expected to increase by 0.2%/16.5%/9.5% between 2020 and 2022, respectively.

The “buy” rating was reaffirmed but the target price was lowered to HK$18.00. We assessed the company based on the segment plus total valuation method and applied a 25% discount to the integrated company. Our target price of HK$18.00 is equivalent to 5.6 times/5.3 times/5.0 times the price-earnings ratio for 2020/2021/2022, and is a potential increase of about 43.3% from the latest closing price.