BEIJING-SHANGHAI HIGH SPEED RAILWAY(601816)：3Q22 RESULTS IN LINE TURNING AROUND QOQ

　　3Q22 results in line with our expectations
　　Beijing-Shanghai High Speed Railway (BSHSR) announced its 3Q22 results: In 1-3Q22, revenue fell 33.8% YoY to Rmb15.23bn, and attributable net profit declined 96.5% YoY to Rmb150mn. In 3Q22, revenue dropped 7.8% YoY to Rmb7.30bn and attributable net profit slid 26.4% YoY to Rmb1.18bn. The firm’s results were in line with our forecast.
　　Trends to watch
　　Passenger flow improved in 3Q22, driving rapid earnings recovery. In 3Q22, market demand gradually picked up and the firm’s earnings rapidly turned around with the containment of COVID-19 in areas along the Beijing-Shanghai (BJ-SH) high-speed rail (HSR) line. Data from the Ministry of Transport[1] shows that in 3Q22, railway passenger flow in China totaled 320mn and experienced MoM growth, up 87.6% QoQ but down 13.9% YoY.
　　We still suggest watching passenger traffic recovery in 4Q22. Scheduled train journeys on the BJ-SH HSR line have returned to 30-50 from end-October to mid-November, lower than that during the same period last year and the 3Q22 level, according to 12306.com. As local COVID-19 resurgence continues, we suggest watching the recovery in passenger flow in 4Q22.
　　We still believe in BSHSR’s long-term investment value. Given the stable COVID-19 conditions, we believe the BJ-SH HSR line is one of the high-speed railway lines with investment value and ample growth potential. First, based on volume, the BJ-SH HSR line is still far from reaching its design capacity. The firm could improve its transport capacity by increasing the number of carriages per passenger train, shortening departure intervals, and adjusting its railway operating plan. Second, in terms of price, the BJ-SH HSR line’s floating fare mechanism has been in place since end-2020. Once passenger flow returns to normal, the earnings growth brought by price adjustment may start to ramp up, in our view. The BJ-SH HSR line adjusted its prices after adjustments to its operating plan in April and July 2021, and its price may rise further in the future.
　　Financials and valuation
　　We maintain our 2022 and 2023 earnings forecasts. The stock is trading at 20.9x 2023e P/E. We maintain OUTPERFORM and our TP of Rmb5.76, implying 27.0x 2023e P/E, offering 29.1% upside.
　　Risks
　　COVID-19 resurgence affects recovery in passenger traffic.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。