2H23 Earnings Are Expected to Improve Significantly, and Annual Dividend Rates Are Attractive; Maintaining “Buying”
The net profit attributable to common shareholders of Shenzhen International 1H23 fell 84.2% year on year to HK$92 million. In line with the company's net profit forecast of 0.3-100 million, revenue fell 7.6% year on year to HK$6.918 billion.
The company's net profit declined markedly year on year, mainly due to financial expenses and one-time income from no subsidiary capital increases and stock expansion in the current period. Considering that 2H23's loan interest rate may remain high, we expect net profit from 2023-2025 to be HK$2,841/18.45/2,299 million (previous value: 44.99/4195/4.666 billion). Our target price based on the SOTP valuation method is HK$9.70 (previously HK$13.60). If the company had a 50% dividend rate and a 23E dividend rate of 9.8%, it would be attractive and “four-wheel drive”
The industrial structure is gradually showing growth potential and maintaining “buying”.
The main business segments operated steadily, and the profit of the logistics park increased year-on-year
1H23's logistics park business recorded revenue of HK$925 million, down 5%, and net profit to parent was HK$392 million, an increase of 127%. The sharp increase was mainly due to the expansion of the logistics park's operating area and property revaluation revenue of HK$94 million in the current period. The toll road business is relatively steady. Under the combined influence of travel recovery and the exchange rate, 1H23 Shenzhen Expressway's revenue fell slightly by 6% year on year to HK$4.633 billion. Under good cost control, net profit at the same time increased 3% to HK$537 million. Also, affected by weak demand from terminal companies, port business revenue also fell 16% to HK$1,326 million, and net profit to parent fell by 6% to HK$50 million. The company's various business operations are improving steadily, and it is expected that profits will continue to increase in the future.
Financial costs are dragging down profits, and 2H23's profit is expected to increase significantly
1H23's net profit to parent declined significantly, mainly because the 1H22 subsidiary received a one-time profit of 2.49 billion yuan from capital increase and stock expansion, which was not available in the current period. At the same time, 1H23 recorded an exchange loss of HK$610 million, and due to higher interest rates on loans, the financial costs of the group headquarters were HK$742 million, an increase of HK$214 million, further hampering the company's profits. However, looking ahead to the second half of the year, in the Qianhai Phase II independent development section of the company's logistics park transformation project, the company announced that it had repaid 5.1 billion yuan, which is expected to increase profits by entering the account 2H23.
Adjust the target price to HK$9.70 to maintain the “buy” rating
Considering that 2H23's loan interest rate may remain high and exchange losses, we expect net profit from 2023-2025 to be HK$2,841/18.45/2,299 million (previous value: 44.99/4195/4.666 billion). We lowered our target price based on the SOTP valuation method by 29% to HK$9.70. We believe that the company's logistics parks, toll roads, etc. are operating steadily, and that the “four-wheel drive” industrial structure is gradually showing growth potential, the “small closed loop” is gradually on the right track, and the “big closed loop” may continue to contribute to profits. If the dividend rate of 50% is used, the 23E dividend rate reaches 9.8%, which has some appeal and maintains “buying”.
Risk warning: 1) Logistics Park demand fell short of expectations; 2) Expressway traffic fell short of expectations and fees were lowered; 3) Logistics Park transformation and upgrading business fell short of expectations; 4) Shenzhen Airlines once again dragged down profits.