The logistics park transformation business is expected to increase profits, and the dividend ratio is attractive; maintaining a 52% increase in net profit from “buying” Shenzhen International to HK$1,902 billion in 2023, and revenue also increased 32% to HK$20.524 billion, lower than our previous forecast net profit of $2.84 billion. Of these, 2H23's net profit to mother was $1.81 billion, an increase of 169%. Earnings were lower than expected mainly due to financial costs and slow progress of public REITs projects. However, some of the land value-added revenue from the South China Logistics Park transformation project is expected to be implemented in 2024. We expect net profit of 2024-2026 to be 41.60/43.21/HK$3,540 million (previous value: 18.45/22.99/- 100 million). Our target price based on the SOTP valuation method is HK$9.70. If the company maintains a 50% dividend rate, the 24E dividend rate is 14.6%, which is attractive, and the “four-wheel drive” industrial structure is gradually showing growth potential and maintaining “buying”.
Logistics freight related businesses are under pressure, and travel demand is driving the profit contribution of Shenzhen Express to pick up in 2023. In an environment where overall demand was relatively sluggish, the company's logistics business revenue was HK$1,838 million, a slight decrease of 6% over the previous year, and net profit to mother of HK$532 million, a decrease of 63%. The main reason was that in '22, revenue after tax had fund placement projects of HK$657 million and property revaluation income of HK$252 million. In addition, net profit from the port business fell 15% to HK$88 million. However, the toll road business has returned to normal. The recovery in passenger travel has driven toll revenue to increase by 4%, and Shenzhen Expressway contributed 1.04 billion HK$1.04 billion to net profit, an increase of 54.4%. Looking ahead, the company is actively expanding the scale of high-quality logistics infrastructure in the Greater Bay Area and the country. We believe that the profit of the logistics business is expected to return to the growth path, while the highway and environmental protection business are expected to continue to contribute steadily to profits.
Due to multiple factors, the company's net profit to mother increased by 52% throughout the year
2H23 made a profit of HK$1,810 million, a significant increase of HK$92 million compared to 1H23. The main reason was that Qianhai Phase II independently developed part of 2H23, which made the transformation and upgrading business profit of HK$1,746 billion, an increase of HK$1,777 billion. Looking at the full year, the company's net profit to mother was HK$1,902 million, an increase of 52%. In addition to the profit fluctuations in the main business and the aforementioned Qianhai Phase II 2H23 account, the main reason was the combined impact of factors such as confirmed losses of HK$2,666 billion from Shenzhen Airlines in '22, and earnings before tax of Qianhai Commercial Company.
Target price of HK$9.70, maintaining “Buy” rating
Part of the land value-added revenue from the South China Logistics Park transformation project in 2024 is expected to be implemented in 2024. We expect net profit for 2024-2026 to be 41.60/43.21/HK$3,540 billion (previous value: 18.45/22.99/- 100 million).
Our target price based on the SOTP valuation method remains at HK$9.70. We believe that the company's logistics parks, toll roads and other businesses are operating steadily, and that the “four-wheel drive” industrial structure is gradually showing potential for growth. The “small closed loop” is gradually on the right track, and the “big closed loop” may continue to contribute to profits. With a 50% dividend rate, 24E's dividend rate reaches 14.6%, which is attractive and maintains “buying”.
Risk warning: 1) Demand for logistics parks falls short of expectations; 2) highway traffic falls short of expectations and fees are lowered; 3) Logistics park transformation and upgrading business falls short of expectations.