Key points of investment:
Incident: On November 25, China Merchants Highway issued an announcement. The company plans to jointly establish a joint venture with Zhejiang Shanghai-Hangzhou-Ningbo. Among them, China Merchants Highway invests 50%, and the joint venture plans to acquire 60% of the shares of Hunan Yonglan Expressway Co., Ltd. On December 2, China Merchants Highway issued an announcement stating that it intends to acquire 2% of China Merchants Railway Holdings Limited's shares held by ICBC Financial Asset Investment Co., Ltd.
The target asset, Yonglan Expressway, is superior, and the road production is expected to maintain a high level of traffic and performance in the future. According to the company's official website, the Yonglan Expressway is a highway connecting Lingling District and Lanshan County in Yongzhou City, Hunan Province, China. It is one of the components of the Erlianhot-Guangzhou Expressway (National Highway G55) of China's national expressway network. The total length is about 145 kilometers, and the underlying assets are of high quality. According to the company announcement, the net profit of Yonglan Expressway from January to September '23 was RMB 21.95 million.
After the successful acquisition, China Merchants Railway became the holding subsidiary of the China Merchants Highway Consolidated Statement, and the company's revenue and net profit are expected to grow. According to the company announcement, China Merchants China Railway Investment owns 11 road property project companies, controls the operation and management of 10 highways, and participates in the management of 1 expressway, distributed in seven provinces including Shandong, Henan, Sichuan, Shaanxi, Guangxi, Yunnan, and Chongqing, with a total mileage of 958 kilometers. Before the acquisition, China Merchants Highway Holdings held 49% of China Merchants Railway's shares. After the transfer of the 2% shares held by ICBC Investment, China Merchants Railway will become the holding subsidiary of the China Merchants Highway consolidated statement. The asset size, operating income, and net profit of China Merchants Highway will all increase, which will have a positive impact on the improvement of the company's operating performance.
The epitaxial merger and acquisition strategy continues to advance, and performance growth can be expected, maintaining the “increased holdings” rating: considering that the steady growth of the highway industry drives the company's development, and the obvious advantages of road property resources acquired by the company, as well as consolidated reports of high-quality subsidiaries, maintaining profit forecasts for 23, 24, and 25 years, the company's 2023E-2025E net profit is expected to be 58.50, 64.56, and 7.177 billion yuan, corresponding to PE, 10/9/8 times, respectively. Maintain the “increase in holdings” rating on the investment promotion road.
Risk warning: fee standards reduce risk; force majeure; competitive positions cause traffic to shift.