Event: when the company released its mid-2017 report, 1H2017 realized revenue of 2.159 billion yuan (- 5.90%), net profit of 590 million yuan (- 20.22%), net profit of 343 million yuan (+ 17.57%) and EPS of 0.25 yuan.
Comments:
The main business develops steadily and the cost control is very effective. During the reporting period, the company's revenue mainly came from highway operation, oil product sales and engineering business, with realized income of 1.471 billion yuan (- 2.18%), 411 million yuan (+ 3.79%) and 230 million yuan (- 23.26%), respectively. the proportion of income was 68.13%, 19.04% and 10.65%, totaling 97.82%. The gross profit margin is 57.22% (+ 4.42pct), 6.16% (- 1.07pct) and 19.83% (- 2.6pct) respectively. Although overall revenue fell, the company's costs were properly controlled, with overall gross margin up 2.2 per cent year-on-year and gross margin rising 3.4pct to 42.5 per cent. During the reporting period, traffic service fees remained the main source of revenue and gross profit of the company, and the increase in the average selling price of oil products contributed to the increase in revenue from oil sales.
The improvement of the road network offsets the impact of diversion. At present, the company mainly operates 8 expressways, such as Changjiu, Changchang, Changtai, Jiujing, Wenhou, Penghu, Changfeng and Fengtong, with a total mileage of 796km, accounting for 13.27% of the total mileage of 6000 km of the existing expressways in Jiangxi Province. Among them, Changjiu, Changzhang, Changtai and Jiujing Expressway realized income of 372 million (- 8.74%), 292 million (- 12.99%), 326 million (+ 15.23%) and 316 million (+ 9.47%) from January to June, accounting for 88.78% of the toll income. During the reporting period, under the influence of the diversion of Changjiu Avenue and Dongchang Expressway and the company's Changjiu Expressway four to eight projects, the traffic flow of Changjiu and Changzhang Expressway decreased significantly, but at the same time, the Quzhou section of Hangzhou-Xinjing Expressway was opened to traffic, resulting in an increase in revenue of Jiujing Expressway. The improvement of the road network has increased the number of cross-provincial vehicles, and the income of Zhi Changtai Expressway has increased significantly. The effects of diversion and income increase offset each other, so that the company's toll income is basically flat.
The division of the engineering business affects the overall income. In December 2015, the company sold all its 65.3204% equity interest in Jiangxi-Guangdong Expressway Engineering Company and 56% equity stake in Jiahe Engineering Consulting and Supervision Company to the controlling shareholder Provincial Expressway Group, and simultaneously transferred 8.0757% equity in Guosheng Securities. After the completion of the transaction, the company's engineering business income decreased by 1.106 billion, and the proportion of revenue fell from 31.7% in 15 years to 14.0% in 2016. 1H2017 due to the slowdown of highway construction, the reduction of engineering projects led to a further reduction in engineering business income, affecting the company's overall revenue.
The deduction of non-net profit has increased significantly. After the completion of the above equity transfer transaction, the company held 20.0114% of the equity of Guosheng Securities, which was used as consideration to participate in the fixed increase project of Huasheng shares (now renamed Guosheng Financial Holdings) in May 2016, and received 5.52% of its equity and cash consideration. In the same period last year, the company confirmed an investment income of 547 million yuan as a result of this transaction. In addition, the company received 278 million yuan in financial support in January this year, compared with 120000 yuan in the same period last year. This financial support is closely related to operation and is sustainable, but the amount is large and the collection time is offset, which affects the comparison of financial indicators. Excluding the impact of the above major events, the company's 1H2017 deduction non-net profit increased by 17.57%, and its profitability rebounded.
Investment suggestion: the company is listed as the only highway in the province, and its main business development is supported by the Jiangxi provincial government in terms of policy and funds. At the same time, the company's multiple development goals are clear, and the capital operation is running step by step. Currently, the market value of financial assets is 2.476 billion yuan (based on the closing price on 2017-6-30, Guosheng Financial Holdings: 5.52% / market value 1.314 billion, Cinda Real Estate: 6.58% / market value 577 million, Hunan Post Technology: 4.26% / market value 147 million In cash terms, Hengbang Insurance: 20% largest shareholder / market capitalization 437 million). We are optimistic about the long-term development prospects of the company, and the current valuation is low. It is estimated that the EPS from 2017 to 2018 will be 0.40 yuan and 0.42 yuan respectively, with an investment rating of "increasing holdings-A". The 6-month target price is 6.10 yuan, which is equivalent to 1.1 times PB in 2017.
Risk hints: macroeconomic downturn, lower-than-expected diversified development, and higher interest-bearing liabilities
