CHINA MERCHANTS EXPRESSWAY(001965)：2023 RESULTS IN LINE; DIVIDEND PER SHARE HITS NEW HIGH

2023 results in line with our expectations
China Merchants Expressway announced its 2023 results: Revenue rose 17.3% YoY to Rmb9.73bn and attributable net profit grew 39.2% YoY to Rmb6.77bn, in line with our expectations. In 4Q23, revenue rose 13.5% YoY to Rmb3.16bn, and attributable net profit grew 97.6% YoY to Rmb2.40bn, mainly thanks to asset revaluation gains of Rmb1.65bn from consolidating China Merchants China Railway Holdings into the firm’s financials in 4Q23.
Trends to watch
Business performance by segment:
Investment and operation: In 2023, revenue rose 24.6% YoY to Rmb6.40bn, up 10.0% from 2021, mainly driven by recovering traffic volume amid rising demand for travel. In 2023, traffic volume of road sections controlled by the firm rose 24.5% YoY.
Investment income: In 2023, the firm’s investment income rose 72.9% YoY to Rmb5.99bn, of which investment income from associates and joint ventures rose 28.9% YoY to Rmb4.33bn, mainly due to YoY earnings recovery of the 26 toll road companies in which the firm holds stakes. In addition, the firm recorded asset revaluation gains of Rmb1.65bn from consolidation of China Merchants China Railway Holdings in 4Q23.
Other segments: Revenue from transportation technology and transportation ecosystem rose 16.9% and 14.9% YoY to Rmb2.19bn and Rmb0.31bn in 2023, while that from intelligent transportation declined 18.6% YoY to Rmb0.82bn.
We expect the firm to maintain earnings growth in 2024. We attribute the firm’s double-digit earnings growth in the past to the organic traffic growth of high-quality controlled road assets and continued M&A that boosted earnings. Looking ahead to 2024, we expect traffic volume of the firm’s expressways to maintain steady growth. Meanwhile, according to the firm’s announcement, the expressway asset package of Road King Infrastructure Limited, which the firm acquired after signing an agreement in 2023, is likely to be delivered in the near future. Road King Infrastructure Limited generated net profit of Rmb0.24bn in 7M23. We believe the deal may boost the firm’s investment income upon completion.
In addition, the firm’s Bofu REITs project is progressing steadily, which we expect will likely contribute value-added income if it comes online in 2024.
Dividend policy stable; dividend per share hit new high thanks to asset revaluation gains. According to the firm’s shareholder return plan for 2022-2024, the annual dividend payout ratio should not be lower than 55% of its attributable net profit (after deducting distributions to holders of other equity instruments such as perpetual bonds). In 2023, the firm’s dividend rose 28% YoY to Rmb0.53/sh, mainly due to asset revaluation gains recorded from the consolidation of China Merchants China Railway Holdings. We believe the firm attaches great importance to shareholder returns and has a stable dividend policy.
Financials and valuation
We maintain our 2024 earnings forecast largely unchanged, assuming the firm consolidate Road King Infrastructure Limited into its financials in 2Q24 and remove Bofu REITs from its balance sheet in 2024. We introduce our 2025 earnings at Rmb6.26bn. The stock is trading at 11.1x 2024e and 12.3x 2025e P/E. Given the firm’s strong growth potential, we maintain an OUTPERFORM rating and raise our target price 17.1% to Rmb13.52, implying 13.2x 2024e P/E and a 4% dividend yield, offering 20% upside.
Risks
Disappointing M&A and/or valuation of Bofu REITs project.
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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。