1Q24 results are basically in line with expectations
The company announced 1Q24 results: 1Q24 achieved revenue of 3.02 billion yuan, +49.1% year-on-year; net profit to mother was 1.29 billion yuan, -4.1% year-on-year, which was basically in line with our expectations. The company's rapid revenue growth rate was mainly due to the company's merger with China Railway.
Development trends
1Q24 Company toll revenue may be under pressure. We believe that the company's 1Q24 profit declined year-on-year or was mainly pressured by the increase in toll revenue. The main reasons were: 1) 1Q24 affected bus travel due to weather factors; 2) the number of free days during the Spring Festival increased by 2 days this year; 3) the concentrated travel base for residents was high after the optimization of the epidemic policy last year. Looking ahead to the whole year, we believe that high-speed passenger traffic is expected to maintain steady growth, and freight is expected to gradually recover as the economy improves month-on-month.
Looking ahead to this year, the company's performance is expected to maintain steady growth. According to the company's announcement, the company has completed the acquisition of the Lujin Express Asset Package. We believe that Lujin (China) Infrastructure is expected to achieve net profit of 240 million yuan in January-July 2023 in 2Q24, and is expected to further increase the company's investment income later. In addition, the company continues to increase its holdings in Yuexiu Transport Infrastructure. As of April 2, it already holds 10% of Yuexiu Transportation's shares. We believe it may be possible to implement equity method accounting in the future. Furthermore, the company's Bofu REITs project is progressing steadily. If it goes public within the year, we believe that the company is expected to record some value-added revenue.
Therefore, we believe that the company is expected to achieve steady growth through endogenous growth+epitaxial mergers and acquisitions.
The dividend policy is steady, and the dividend per share is expected to increase year by year. According to the company's “Shareholder Return Plan for the Next Three Years (2024)”, the annual dividend ratio is not less than 55% of net profit due to mother (after deducting allocations to holders of other equity instruments such as perpetual bonds). We believe that the company values shareholder returns. In 2023, the company will give investors a 55% dividend on the asset revaluation income generated by the merger of China Merchants Railway. We believe that the company's dividend per share is expected to follow the company's performance and achieve steady growth.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to the 2024/2025 11.2x/12.5x price-earnings ratio. Maintaining an industry rating and a target price of 13.52 yuan, corresponding to 13.2 times the price-earnings ratio of 2024 and 14.7 times the price-earnings ratio of 2025, there is 18.0% upside compared to the current stock price.
risks
REITs fell short of expectations, and economic growth fell short of expectations.