The deduction of non-profit was in line with expectations, and the dividend ratio reached 59.8%
The company recorded revenue of 3,967 billion yuan (+20.6% YoY) and net profit to mother of 765 million yuan (+68.9% YoY) in 2023. As the Shantou Bay Bridge was affected by the continuous diversion of parallel sections of the road, the company calculated impairment losses of 100 million yuan and deducted non-net profit of about 865 million yuan after exclusion, which was in line with our expectations (866 million yuan). Net profit increased year-on-year, mainly due to: 1) economic recovery after the epidemic and a recovery in travel intentions; 2) low performance base. The company's dividend for the full year of 2023 reached HK$0.30 per share (of which an interim dividend of HK$0.15 per share has been paid), the annual dividend rate is about 6.6%, and the dividend ratio reached 59.8%. Considering the impact of the Shenzhen-China Corridor on the diversion of Humen Bridge and the construction of Guangzhou North Second Ring Road, we lowered our 2024/25 net profit forecast to 8010/869 million yuan (previous value: 809/974 million yuan); introduced a 2026 net profit forecast of 921 million yuan. We lowered our target price by 5.5% to HK$5.34 (previous value HK$5.65), based on 10 x 2024E PE (previous value 10x 2023EPE), which is the average PE for 2016 to 2023. Maintain “buy-in.”
Toll revenue rebounded significantly in '23, benefiting from a recovery in travel
The company's toll revenue increased 20% year on year in 2023, mainly due to 1) the increase in the contribution of the newly acquired Lanwei Expressway; 2) revenue from other road sections increased 12% year over year, benefiting from the recovery of travel. Excluding the Lanwei/Hanxiao Expressway, the revenue from deducting non-toll fees in '23 slightly exceeded 3% in '21. According to statistics from the Ministry of Public Security, the number of motor vehicles owned nationwide at the end of '23 increased by 25% compared to the end of '19. However, compared to 2019, the company's main road sections were affected by the diversion of the surrounding road network, and the revenue growth rate was lower than the growth rate of car ownership. Toll revenue from Guangzhou North Second Ring Road/Weixu Expressway decreased by 9/ 9% compared to '19, while other road sections (excluding acquisitions and listing projects since '19) increased 6% compared to '19. The company's gross profit in 2023 reached 2.147 billion yuan, an increase of 25% over the previous year, mainly benefiting from a recovery in travel; gross profit in '23 increased 7% compared to '19.
Due to improved balance ratios and lower interest rates, financial expenses were optimized. By model, buses were strong and trucks were weak in 2023. National highway bus traffic increased 31% year on year, up 14% year on year; truck traffic increased by only 3% year on year, but decreased by 2% from year 21 (Ministry of Transport Planning Institute). Due to improved cash flow, the company's balance ratio fell 1.5pct to 59.3% year over year at the end of '23. Along with the decline in market interest rates, the real interest rate for loans fell 14 bp to 3.24% year on year at the end of '23. Overall, financial expenses decreased by 60 million yuan year-on-year in '23, a decrease of 10%. In addition, general and administrative expenses decreased by $40 million year-on-year, or 14%.
Passenger traffic improved during the Spring Festival travel season in '24, and truck improvements are still worth looking forward to a long Spring Festival holiday this year, setting off a boom in self-driving tours. During the Spring Festival travel season (1.26-3.4), the number of passengers traveling on highways and ordinary national and provincial highways increased by about 5.5% year-on-year, up 31.5% over the same period in '19 (Ministry of Transport), showing strong will to travel. However, considering that the number of free toll days during the Spring Festival increased by 2 days and the number of leap year days increased by 1 day, the number of toll days in 1Q decreased by 1.2% over the same period last year. National highway truck traffic increased 6.5% year-on-year in January-February (Ministry of Transport), and freight is also recovering, so further improvements are still worth looking forward to.
Risk warning: economic growth slowing, capital expenditure exceeding expectations, road network diversion, lower fees.