1H23 results slightly miss our expectations
Jiangsu Expressway announced its 1H23 results: Revenue rose 46.4% YoY (after retrospective adjustment) to Rmb7.14bn (up 47.6% from 1H19); attributable net profit rose 35.7% YoY (after retrospective adjustment) to Rmb2.48bn (up 8.8% from 1H19). 1H23 slightly missed our expectations, mainly due to relatively slow growth in truck traffic volume (the combined average daily passenger vehicle and truck traffic volume in 1H23 grew 103.6% and 3.6% YoY).
In 2Q23, revenue rose 63.4% YoY (after retrospective adjustment) to Rmb3.51bn (up 41.8% from 2Q19); attributable net profit rose 26.9% YoY (after retrospective adjustment) and 2.3% QoQ to Rmb1.25bn (up 0.6% from 2Q19).
Trends to watch
Toll roads: Toll revenue in 1H23 rose 36.7% YoY from a low base to Rmb4.52bn (up 19.7% from 1H19). Gross profit in 1H23 rose 71.6% YoY to about Rmb2.92bn (up 12.5% from 1H19), and gross margin in 1H23 was 64.5% (down 4.1ppt from 1H19). Huning Expressway's toll revenue in 1H23 rose 36.1% YoY to Rmb2.59bn (up 1.8% from 1H19), accounting for about 57% of total toll revenue.
The firm's gross profit in 1H23 rose 46.9% YoY to about Rmb1.77bn (down 7.6% from 1H19), accounting for about 61% of total gross profit of toll roads. Wufengshan Bridge's traffic volume grew rapidly, and Wufengshan Bridge Company recorded net profit of Rmb93.87mn in 1H23, turning profitable.
Alternative energy business: Revenue in 1H23 rose 9.6% YoY to Rmb351mn, mainly driven by YoY growth in on-grid electricity generated by offshore wind power projects. Gross profit was about Rmb180mn, implying a gross margin of 51.3%, up 0.72ppt YoY.
We expect dividends to increase along with earnings recovery. The firm's earnings and dividends have increased almost every year since 2014 except in 2020-2021 due to COVID-19. The absolute amount of dividends did not decrease during the pandemic. We think that as the firm's earnings recover in 2023, it may continue to increase its dividends to ensure absolute returns for investors.
Financials and valuation
As the recovery in truck traffic volume is relatively slow, we cut our 2023 and 2024 net profit forecasts 5.1% and 4.9% to Rmb4.7bn and Rmb5.0bn. The H- share is trading at 6.9x 2023 and 6.2x 2024 P/E. The A-share is trading at 10.3x 2023 and 9.7x 2024 P/E. Considering the firm's solid dividends and visible earnings, for H-shares we maintain OUTPERFORM and our TP of HK$9.92 (9.6x 2023 P/E and 8.6x 2024 P/E), offering 38.6% upside from the current price. For A-shares we maintain OUTPERFORM and our TP of Rmb10.91 (11.7x 2023 P/E and 11.0x 2024 P/E), offering 13.2% upside from the current price.
Risks
Economic growth weaker than expected; traffic volume of new roads lower than expected.