The Company’s 2019 results was in line with our forecast. It has achieved great progress in land development as well. Considering impact of the COVID-19, we lower target price to HK$ 4.41. Maintain BUY.
- 2019 Revenue in line. Share of profit from GZ West Superhighway increased 16.67% YoY to RMB 189mn, beating our expectation by 2%. Share of profit from GS Superhighway decreased 7.67% YoY to RMB 487mn, missing our expectation by 4%. Net profit increased 1.76% YoY to RMB 612mn, missing our expectation by 7%. The Board proposed final dividend of RMB 10.1 cents per share. Together with interim dividend of RMB 9.8 cents per share, total payout ratio remained 100% for the year.
- Growth of GZ West Superhighway remained steady while that of GS Superhighway decreased. GZ West Superhighway remained steady growth. Average daily traffic increased 9% YoY to 59,000 vehicles, and average daily toll revenue increased 5% YoY to RMB 4.150mn. For GS Superhighway, average daily traffic decreased 2% YoY to 100,000 vehicles due to traffic diversion and construction works, and average daily toll revenue decreased 3% YoY to RMB 8.835mn, mainly due to the impact of higher ETC discount.
- Great progress in land development. The Company and Guangdong Provincial Communication Group established the Xintang JV in Nov 2019. The JV won the bid for the residential land use rights of Xintang Interchange in Dec last year. We believe the Company will benefit from land development and create better returns for shareholders.
- Risks. (1) ETC discount. During 2H19, share of average daily traffic of vehicles using ETC increased from 45% to 54%. We expect ETC penetration to increase, weighing on toll revenue of the Company. (2) Expansion of GS Superhighway. GS Superhighway has started feasibility study of road expansion. We expect the potential expansion to have a negative impact on traffic of GS Superhighway.
- Valuation. In Jan 2020, for GZ West Superhighway, average daily traffic decreased 19% YoY, and for GS Superhighway, average daily traffic decreased 34% YoY. We forecast 2020E average daily traffic for GZ West / GS Superhighway will decrease 3.3%/7.7% YoY, respectively, and we assume the toll-free policy will end 31 Mar. Based on DCF valuation method, we lower target price to HK$ 4.41, representing upside potential of 43%. Maintain BUY.
