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Shandong Expressway:In line with expectations on strong 4Q revenues; Buy on valuation

发布时间:2011-02-28    研究机构:高盛高华证券

After market close on February 25, Shandong Expressway (SDE) reported 2010net profit of Rmb1,251mn (EPS of Rmb0.37, up 19% yoy), roughly in-line withour expectations. Key highlights include: (1) Sequential margin improvement:We saw sequential operating margin improvement in 2H10 of 50%, from 46% in1H10. For the full year 2010, toll revenue was up 14% yoy, while toll businessoperating margin expanded by 3 ppt yoy to 49%. (2) Toll business in 4Q10 wasstrong: Toll operations were particularly strong in 4Q10 (especially Jiqingexpressway, with revenue up 18% yoy), but this was partly offset by higherlosses from Xuyu expressway where associate losses in 4Q10 was Rmb25mn,widened from loss of Rmb15mn in 3Q10. (3) SDE continued to downsize itspetroleum sales business, with revenues down 25% yoy, given the lowprofitability (breakeven on the operating line) of this business.

What to do with the stock。

We fine-tune our 2011E/2012/E/2013E EPS by 0%-1% and reiterate our Buyrating on SDE as we think the stock is attractively valued at 0.9X forward 1-year EV/GCI versus sector average of 1.1X, while SDE delivers the highestCROCI amongst A-share listed expressways. Our Director’s Cut (EV/GCIbased)12-month target price of Rmb6.90 (unchanged) is based on anupdated EV/GCI multiple of 1.30X (from 1.32X), underpinned by average2011E-2013E CROCI of 14.7% (from 14.4%) and sector Valratio of 0.84X(from 0.87X). Key risks: (1) uncertain traffic growth and toll fee regulation,(2) further earnings dilutive asset injection, (3) earlier than expectedwidening of Jiqing expressway from 4-lane to 8-lane that would requirehigher capex, (4) worse than expected diversion from high speed rail andJinghu second expressway in 2013.

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