Summary. The Company announced framework agreements with Guangdong Highway Construction and Leatop Real Estate. The agreements set out principles of cooperation in relation to potential development and utilization of the land along the GS Superhighway (including the Xintang interchange). We have factored in land development of Xintang Interchange, and we estimate NAV of RMB 1,367mn. We believe potential land development of other interchanges and higher-priced areas such as Shenzhen, will release more value. Based on DCF, we maintain our target price at HK$ 4.88, representing upside potential of 28.1%. Reiterate BUY.
- Land development on the way. (1) This agreement marks a solid progress of land development of Xintang Interchange. Next, we expect the company to set up a project company and start real estate development, which will bring cash flow to the company starting from 2022E. (2) The GS Superhighway has 23 toll stations or interchanges, of which ~10 toll stations or interchanges are suitable to undergo traffic layout transformation for land utilization in order to release land for comprehensive development. This agreement not only marks the progress of land development of Xintang Interchange, but also suggest that the development of other interchanges along the GS Superhighway is also under consideration. (3) The GS Superhighway is comprised of three sections spanning Guangzhou, Shenzhen and Dongguan. We believe land development in higher-priced areas such as Shenzhen will release more value.
- Toll business remains in good shape. In Sep, average daily traffic of GS superhighway was 102,000 vehicles, same as last year. Average daily traffic of Western Delta Route was 66,000 vehicles, representing a YoY increase of 15.8%. YTD average daily toll revenue of GS superhighway was RMB 8.813mn, down 4.2% YoY. YTD average daily toll revenue of Western Delta Route was RMB 4.143mn, up 7.2% YoY.
- Reiterate BUY. We have factored in land development of Xintang Interchange, and we estimate NAV to be RMB 1,367mn. We believe potential land development of other interchanges and higher-priced areas such as Shenzhen, will release more value. Based on DCF valuation method, we maintain target price at HK$ 4.88, representing upside potential of 28.1%. Reiterate BUY.
