Key points of investment
South China Railway leader, with both passenger and cargo business. Overall performance until 2020, Guangzhou-Shenzhen Railway is the first railway joint-stock enterprise in China. The company's road production is the Pingshi-Guangzhou-Shenzhen section of the railway. According to revenue, the business is divided into Guangzhou-Shenzhen Intercity (C title), Hong Kong Express, long-distance buses (mainly green wagons until 2020), and freight business. The 2014-2019 revenue CAGR was 7.4%.
China's high-speed rail construction is on the rise
In recent years, China's railway investment has increased rapidly. Among them, the CAGR for the 2004-2014 decade was 24.5%, and since then it has basically remained at the level of 80 billion yuan per year. Under the “eight vertical and eight horizontal” railway network construction plan, we believe that the amount of railway investment will remain high in the future. High investment has led to a rapid increase in the share of high-speed rail mileage, mainly replacing ordinary rail and road travel. As of 2022, high-speed rail mileage accounted for 27%. According to the plan, the target is to reach 30%/35% of high-speed rail mileage by 2025/2035, respectively.
Sources of future profit growth: The company is expected to fully enter the field of high-speed rail operations. The performance is huge. At the end of 2021, the company began to enter the high-speed rail operator, and the company began to enter the high-speed rail operator. The Gan-Shenzhen High Speed Rail opened to traffic at the end of 2021, and was interconnected with the company's Guangzhou-Shenzhen intercity line. The company added some cross-line EMU trains from Guangzhou East Railway Station and Shenzhen Station to the Ganshen Railway. Beginning to enter the field of high-speed rail operations, passenger flow structure was optimized, and passenger tickets and revenue increased dramatically.
Beginning of 2023: Express trains crossing the port were changed to high-speed rail trains. At the same time, the company added a number of direct rail transit services and suspended operations during the period 2021-2022. Starting in 2023, the direct bus business was changed to high-speed rail EMU trains, and the route was changed to the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong High Speed Rail. At the same time, the company has added multiple pairs of high-speed rail trains to Hong Kong. According to our statistics, as of September 15, the company was responsible for about 17 pairs of high-speed trains from all over the country to Hong Kong's West Kowloon every day. While the company's overall passenger flow did not recover, it drove the company's 23H1 performance to recover rapidly. Revenue increased 22% year on year over 19H1, and achieved net profit of 677 million yuan.
End of 2023: The Guangzhou-Shantang Railway is about to open, and the company is expected to obtain high-speed rail transport qualifications to Chaoshan and Xiamen. At the same time, with the completion of the link between Xintang Station and Guangzhou East Railway Station, the Guangzhou-Shantang High Speed Rail will be connected to the Guangzhou-Shenzhen Intercity Xintang Station in the future. The company is also expected to obtain some carrier qualifications for high-speed railways from Guangzhou East to Chaoshan and Xiamen, which is expected to bring considerable performance increases.
2027: Guangzhou and Guangzhou East Railway Station may be converted into high-speed rail stations. The company is expected to fully enter the field of high-speed rail operation. Currently, Guangzhou has only one high-speed rail station in Guangzhou South, and is far from the city center. According to Guangdong Province's “14th Five-Year Plan” transportation system development plan, Guangzhou Station and Guangzhou East Railway Station may be converted into a high-speed rail station, while Guangzhou Station will establish a link with Guangzhou South Railway Station. In the future, the high-speed rail from all over the country is expected to enter Guangzhou Station/Guangzhou East Railway Station. This means that the company is expected to qualify as a carrier for long-distance high-speed railways to all parts of the country.
We estimate that for every 5 new high-speed rail pairs in the Guangzhou/Ganshen high-speed rail direction, the annual performance will increase by 20/260 million yuan respectively; if the company opens 10 additional high-speed rail pairs from Guangzhou/Guangzhou east to the whole country, the company's annual performance will increase by 6.1 billion yuan.
Profit forecasting and valuation
The company's net profit for 2023-2025 is estimated to be 1.24 billion, 13.9 billion yuan, and 1.52 billion yuan, corresponding to EPS of 0.17, 0.20, and 0.21 yuan respectively. The company's current stock prices correspond to 16.86, 15.08, 13.75xPE, 0.79, 0.75, and 0.71 x PB for 2023-2025, respectively. In the past, the company mainly operated intercity trains and green wagons. In the future, with the connection of the Ganshen-Shenzhen High Speed Rail and the Guangzhou-Shantou High Speed Rail, and the Guangzhou Railway Station and Guangzhou East Railway Station or being converted into high-speed rail stations, the company is expected to fully enter the field of high-speed rail operation, leading to a double increase in performance and valuation. For the first time, coverage, and a “increase in holdings” rating.
Risk warning
The number of newly opened high-speed rail trains fell short of expectations, the diversion of other high-speed rail lines, etc.