China’s Ministry of Transport will restore tolls for all toll roads nationwide from 6 May, after scrapping tolls from 17 Feb during the epidemic prevention and control period. The toll resumption came later than our base case assumption, and we accordingly revised FY20E AOP / EPS / NAV by -24% / -45% / -6.3%. Maintain BUY, with TP cut to HK$12.18.
- Overhang removed, but no protective policies yet. While the toll resumption removed a major policy overhang, there has been no update on any “protective policies” which was mentioned in MoT’s 15 Feb announcement. (“relevant ancillary protective measures to protect the rights of toll roads users, creditors, investors and operators” / “将另行研究出台相关配套保障政策，统筹维护收费公路使用者、债权人、投资者和经营者的合法权益”).
- Roads segment AOP to drop 82% YoY . We had previously assumed in our base case that the toll suspension would last until late-Mar, and that impact on Roads segment / Group’s AOP would be -54% / -17%. Now that tolls will be restored only from 6 May is close to our worst case assumption. Our new estimate of FY20E Roads’ AOP is -81% YoY (old forecast -45%) to HK$346mn, or 11% of Group’s AOP.
- Roads traffic gradually recovering. According to MoT, number of passengers travelled by road -73% YoY in Mar (vs. -12% in Jan, -89% in Feb), while freight traffic volume by road -29% in Mar (vs. -34% in Jan, -51% in Feb).
- Potential catalysts: 1) China’s protective policies to compensate for Roads’ toll exemption; 2) spinoff (e.g. aviation); 3) disposals of non-core assets such as Transport; 4) acquisitions at attractive valuation.
- Maintain BUY, TP cut to HK$12.18. We revised FY20E AOP / EPS / NAV by -24% / -45% / -6.3%, having also considered widening losses in Transport and Facilities Management segments. TP is cut from HK$13.00 to HK$12.18, based on 25% discount to FY20E NAV. FY21E AOP / EPS are trimmed by only 1.9% / 1.6%, as we expect business to gradually return to normal once the COVID-19 is under control. We expect DPS would be kept stable under the new dividend policy, as cashflow would remain healthy despite decrease in earnings. It remains an attractive yield play with 7.2% dividend yield.
