1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ HSBCChinaConferen
2、ce201915-17May,ShenzhenRegister nowTHIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE PRC)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Most listed expressway companies see traffic below our expectation:National expressway overall traffic volume in March rose
3、 4.4%y-o-y,with passenger vehicles(PV)and truck traffic up 2.2%and 11.6%,respectively.In 1Q19,national expressway overall traffic increased 7.7%y-o-y,higher than Chinas GDP.However,most of the listed expressways toll revenue growth was below our expectation in March except Shenzhen Expressway and Si
4、chuan Expressway.Yuexiu reported monthly declines y-o-y related to the new road diversion impact and bad weather.Both Jiangsu and Zhejiang Expressway registered low single-digit growth which may reflect macroeconomic weakness in Chinas east coast.Note that railway freight volume also was weak in Mar
5、ch 2019(flat y-o-y vs.China Railway Corporations target of 5%y-o-y growth for 2019).As an indicator of the macro economy,the rail and road traffic weakness in 1Q19 shows that Chinas economic recovery looks still challenging,in our view.The concern of a potential US-China trading war re-emerging may
6、pose uncertainty for the toll revenue growth outlook.This could lead to volatile share performance in the near term.We believe it is critical to track April statistics,which will be announced by the end of May.Near-term policy risk on cross border toll station is easing:All dual-listed expressway co
7、mpanies released 1Q19 results.Zhejiang Expressway reported strongest earnings growth of 25.4%followed by Shenzhen Expressway at 17.7%,helped by securities business recovery and finance cost-saving,respectively.Toll road organic growth was in mid-single digits for both companies.A favourable policy,i
8、e,the Expressway Management Ordinance,is likely to be finalized in 2H19 at the earliest.Most of the expressway operators have expansion plans for their major assets,for example,Shenzhen Expressway and Yuexiu Transport.The official announcement of the policy may speed up the negotiation progress with
9、 government and provide clarity on project investment return.However,the near-term policy risk is the central government is removing toll stations at provincial borders to promote E-tolling and targeting to remove most of them by end-2019 rather than the previously announced 2020.This may require in
10、vestments in system upgrades and difficulty in daily operation,although improving traffic efficiency and saving labour costs long term.Investment views:We like Zhejiang Expressway and Shenzhen Expressway (TPs unchanged)for their stable toll road business outlooks and strong earnings growth upside fr
11、om other business contribution.We adjust our target prices for Sichuan Expressway and Anhui Expressway to reflect their 1Q19 results,as we make changes to our earnings estimates(details on page 2).March 2019 national expressway freight volume stayed solid but most of listed company traffic below our
12、 expectation 1Q19 sector results generally in line with our expectation.Macroeconomic uncertainty for toll revenue growth Our preferred Buys in the sector are Zhejiang Expressway(576 HK)and Shenzhen Expressway(548 HK)15 May 2019 Lesley Liu*Analyst,Infrastructure&Industrials The Hongkong and Shanghai
13、 Banking Corporation Limited .hk+852 2822 4524 Anderson Chow*Global Co-Head of Industrials Research The Hongkong and Shanghai Banking Corporation Limited .hk+852 2996 6669 Bing Yi Zheng*Associate Shanghai *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified purs
14、uant to FINRA regulations China Expressway Equities Transportation Infrastructure China Trade war uncertainty weighs on toll revenue outlook 2 Equities Transportation Infrastructure 15 May 2019 H-shares:Changes to TPs and estimates Current _ Target Price _ _ Rating _ Implied Upside Market Cap 6m ADT
15、V PE EV/EBITDA P/B Div Yield Company Ticker Price Old New Old New Downside(USDm)(USDm)FY19e(x)FY19e(x)FY19e(x)FY19e(%)Sichuan Expressway-H 107 HK 2.50 2.65 2.60 Hold Hold 4.0%1,567 0.47 7.2 7.6 0.4 5.0 Jiangsu Expressway-H 177 HK 10.78 11.00 11.00 Hold Hold 2.0%7,259 4.54 11.0 9.3 1.6 5.0 Shenzhen E
16、xpressway-H 548 HK 9.48 10.40 10.40 Buy Buy 9.7%3,037 4.64 9.2 7.5 1.2 5.1 Zhejiang Expressway 576 HK 8.36 11.00 11.00 Buy Buy 31.6%4,626 5.61 8.1 4.0 1.3 5.6 Anhui Expressway H 995 HK 5.11 5.20 5.20 Hold Hold 1.8%1,372 0.58 6.7 4.2 0.7 5.6 Note:Prices in HKD as of close on 10 May 2019.Source:Refini
17、tiv Datastream,HSBC estimates A-shares:Changes to TPs and estimates Current _ Target Price _ _ Rating _ Implied Upside Market Cap 6m ADTV PE EV/EBITDA P/B Div Yield Company Ticker Price Old New Old New Downside(USDm)(USDm)FY19e(x)FY19e(x)FY19e(x)FY19e(%)Sichuan Expressway-A 601107 CH 4.06 2.40 2.30
18、Reduce Reduce-43.3%1,567 14.03 13.5 7.6 0.8 2.7 Jiangsu Expressway-A 600377 CH 9.89 9.50 9.50 Hold Hold-3.9%7,259 10.35 11.6 9.3 1.7 4.7 Shenzhen Expressway-A 600548 CH 9.97 9.00 9.00 Hold Hold-9.7%3,037 10.00 11.2 7.5 1.5 4.2 Anhui Expressway-A 600012 CH 6.20 4.30 3.90 Reduce Reduce-37.1%1,372 8.19
19、 9.3 4.2 1.0 4.0 Note:Prices in HKD as of close on 10 May 2019.Source:Refinitiv Datastream,HSBC estimates 3 Equities Transportation Infrastructure 15 May 2019 China Railway and Expressway Coverage Name Ticker Rating Last Price*3M chg(%)YTD chg(%)TP(lcy)Up/Dn side(%)Mkt Cap(USD bn)6M T/O(USD m)_ PER
20、_ _ EV/EBITDA_ _ P/B _ _ ROE(%)_ _ Yield(%)_ _ Net D/E(%)_ _ EPS growth(%)_ FY18A FY19E FY20E FY18A FY19E FY20E FY18A FY19E FY20E FY18A FY19E FY20E FY18A FY19E FY20E FY18A FY19E FY20E FY18A FY19E FY20E Daqin Railway(A)601006 CH Buy 8.21 -5.6-0.2 10.50 27.9 17.77 57.72 8.4 8.2 7.9 3.2 3.0 2.7 1.1 1.1
21、 1.0 14.0 13.4 12.9 5.8 6.1 6.3-7-8-12 9 2 4 Guangshen Railway(A)601333 CH Hold 3.27 -6.0 3.5 3.50 7.0 3.18 25.34 29.5 16.9 21.0 7.0 6.9 6.2 0.8 0.8 0.8 2.7 4.6 3.6 1.8 2.7 2.1-6-7-10-23 75-20 Guangshen Railway 525 HK Buy 2.73 -16.5-6.8 4.00 46.5 3.18 1.88 21.4 12.2 15.2 7.0 6.9 6.2 0.6 0.6 0.6 2.7
22、4.6 3.6 2.5 3.7 3.0-6-7-10-23 75-20 Sichuan Expressway-H 107 HK Hold 2.50 -0.8 4.2 2.60 6.0 1.57 0.47 7.8 7.2 6.9 8.8 7.6 7.0 0.5 0.4 0.4 6.8 5.9 6.0 4.6 5.0 5.2 93 79 69-5 8 5 Jiangsu Expressway-H 177 HK Hold 10.78 -3.2-1.5 11.00 2.0 7.26 4.54 12.3 11.0 10.8 9.9 9.3 8.8 1.8 1.6 1.5 14.9 13.3 12.8 4
23、.9 5.0 5.1 52 53 44 8 11 2 Shenzhen Expressway-H 548 HK Buy 9.48 3.8 9.8 10.40 9.7 3.04 4.64 11.7 9.2 8.9 3.4 7.5 7.3 1.0 1.2 1.1 17.6 11.5 11.2 8.6 5.1 5.3 50 82 76 4 27 4 Zhejiang Expressway 576 HK Buy 8.36 4.4 22.0 11.00 31.6 4.63 5.61 9.1 8.1 8.0 5.3 4.0 3.3 1.4 1.3 1.2 15.9 16.4 15.1 6.0 5.6 6.
24、1 36 29 15 8 13 0 Anhui Expressway-H 995 HK Hold 5.11 -0.6 9.2 5.20 1.8 1.37 0.58 6.6 6.7 7.2 3.4 4.2 4.4 0.7 0.7 0.6 11.4 10.6 9.2 5.6 5.6 5.2-7 9 15 3-1-7 YueXiu Transport Infra 1052 HK Buy 6.34 2.8 7.5 8.50 34.1 1.35 2.52 8.8 8.7 8.2 5.2 4.5 3.8 0.9 0.9 0.8 11.4 10.8 10.6 6.0 6.2 6.3 42 30 20 11
25、1 5 Hopewell Highway Infra 737 HK Buy 3.87 -2.8-2.0 5.20 34.4 1.52 0.28 16.6 15.2 14.3 7.5 6.5 5.6 2.0 2.1 2.1 12.4 13.8 14.6 9.3 6.5 6.5 100 66 39-10 9 6 Sichuan Expressway-A 601107 CH Reduce 4.06 14.7 16.7 2.30 -43.3 1.57 14.03 14.6 13.5 12.9 8.8 7.6 7.0 0.9 0.8 0.8 6.8 5.9 6.0 2.5 2.7 2.8 93 79 6
26、9-5 8 5 Jiangsu Expressway-A 600377 CH Hold 9.89 -0.9 9.50 -3.9 7.26 10.35 12.9 11.6 11.4 9.9 9.3 8.8 1.9 1.7 1.6 14.9 13.3 12.8 4.7 4.7 4.8 52 53 44 8 11 2 Shenzhen Expressway-A 600548 CH Hold 9.97 8.0 11.0 9.00 -9.7 3.04 10.00 14.1 11.2 10.8 3.4 7.5 7.3 1.3 1.5 1.4 17.6 11.5 11.2 7.1 4.2 4.4 50 82
27、 76 4 27 4 Anhui Expressway-A 600012 CH Reduce 6.20 9.0 2.8 3.90 -37.1 1.37 8.19 9.2 9.3 10.0 3.4 4.2 4.4 1.0 1.0 0.9 11.4 10.6 9.2 4.0 4.0 3.7-7 9 15 3-1-7 Indices HSCEI HSCEI IND 10,931-0.2 9.4 MSCI China MXCN IND 81 3.0 15.2 SSE Comp Ind SHCOMP IND 2,939 12.3 17.9 XWY H share average 0.3 7.1 10.4
28、 9.7 9.5 6.9 6.9 6.4 1.4 1.3 1.2 14.3 12.9 12.3 6.1 5.4 5.5 50 51 40 5 12 2 XWY A share average 4.3 5.4 13.0 11.5 9.0 7.6 8.2 7.8 1.5 1.5 1.4 14.2 11.8 11.2 4.9 4.3 4.4 50 58 51 5 13 2 XWY Sector average 2.3 6.2 11.7 10.4 9.3 7.2 7.4 6.9 1.4 1.4 1.3 14.2 12.4 11.9 5.6 5.0 5.1 50 54 45 5 12 2 Railway
29、 operator average -7.1-0.6 12.9 9.9 10.6 4.2 4.1 3.6 1.0 1.0 0.9 11.1 11.1 10.4 4.9 5.3 5.3-7-8-12 1 21-2*Last Price updated on 10 May 2019*Sector averages are market cap weighted Source:Refinitiv Datastream,HSBC estimates Equities Transportation Infrastructure 15 May 2019 4 Expressway operators 1Q1
30、9 operating stats summary Sichuan Jiangsu Shenzhen Anhui Zhejiang Hopewell Yuexiu Mar 2019 Toll revenue y-o-y 10.5%2.9%12.6%na 1.1%0.6%-2.5%Mar 2019 YTD Toll revenue y-o-y 9.1%8.1%17.5%2.7%4.6%0.3%1.5%Company guidance for toll revenue Flat 4%(organic)5%(organic)1.4%6%(organic)Stable High single digi
31、t HSBC FY19e forecast toll revenue 6.5%5.3%-12.2%2.7%24.8%1.7%6.6%Source:Company reports,HSBC estimates Expressway operators 1Q19 results summary Sichuan Jiangsu Shenzhen Anhui Zhejiang Revenue 1,495 2,362 1,331 750 2,292 Growth 0.93%-16.31%-0.83%2.95%4.90%Toll revenue 1,036 1,860 1,120 714 1,508 Ot
32、hers 459 502 211 36 784 NPAT 429 1,034 467 289 1,031 Growth 8.02%1.70%17.73%7.82%25.35%Excluding one-off NPAT 423 1,034 483 289 Growth 2.92%1.59%6.48%7.60%Source:Company reports News updates for the expressway sector Sichuan introduced 5-15%discounts for trucks with no overloading issues,30%discount
33、 for container trucks,and 5%discount for trucks using E-tolling system.(Sichuan Expressway,22 March 2019).In the State Council meeting held on 5 May,Premier Li mentioned removing most of the toll stations at provincial borders by the end of 2019.The purpose is to promote ETC adoption,optimise the tr
34、uck toll fee structure and gain experience to perfect the regulation.(T,6 May 2019).China expressway traffic volume Passenger cars Source:Ministry of Transport(MOT)of the Peoples Republic of China 5 Equities Transportation Infrastructure 15 May 2019 China expressway traffic volume Trucks Source:Mini
35、stry of Transport(MOT)of the Peoples Republic of China Equities Transportation Infrastructure 15 May 2019 6 Satisfactory 1Q19 results:Jiangsu Expressway NPAT increased 1.7%y-o-y in 1Q19,better than our expectation(-3%y-o-y for the full year).The companys core business toll revenue grew solidly in 1Q
36、19,with 8%y-o-y growth,tracking ahead of the company guidance for 2019 at 4%y-o-y.Ancillary service revenue declined 12.7%y-o-y due to oil service decline but rental income increase helped improve margin.Less property revenue recognition during the period is also the main reason for the total revenu
37、e decline(-16%y-o-y).However,the company still expects full-year property revenue to grow in 2019.2Q19 results could be challenging on numbers as company recognized RMB430m or 10%of FY18 earnings property subsidiary revaluation gain in 2Q18,resulting in high base effect.But core business toll revenu
38、e growth outlook remains solid.Continues to invest in greenfield project in Jiangsu province:The company announced recently that it will spend no more than RMB1.4bn on the Longtan bridge greenfield project.It is a 5 km long bridge across the Yangtze River with a construction period of five years.The
39、 company will team up with local government on the project as a majority shareholder(53.6%).Total project cost is about RMB5.8bn.The company is confident on the return from the project,which it expects to be about 8.3%IRR.It appears that the company will continue to look at greenfield project opport
40、unities in the Jiangsu province as its investment strategy.Compared with the brownfield project,the uncertainty on the traffic and near-term pressure on earnings remain major risks.Stable dividend outlook:The companys dividend policy is for steady growth on payment amount rather than a fixed dividen
41、d pay-out ratio;thus dividend payment growth this year should be steady even if earnings see downside risks.The long-term catalyst for the company includes major project expansion.If industry regulation in the form of Expressway Management Ordinance were announced officially,the company has said pub
42、licly that it may also consider investing in the Shanghai-Nanjing Expressway expansion.Earnings changes summary:We raise our FY18e and FY19e earnings by 1.2%and 4%,respectively:Cut ancillary service due to the companys reduced oil service revenue,which improves margin.Reduced finance cost reflecting
43、 lower interest bearing debt value.Lower investment income as there should be no revaluation gain to be booked in this year.Jiangsu Expressway Jiangsu Expressways 1Q19 NPAT up 1.7%y-o-y;slightly better than we expected Core business toll revenue solid growth at 8%y-o-y YTD;less property recognition
44、in 1Q19 results in total revenue decline Maintain H/A shares at Hold;raise FY19e and FY20e earnings by 1.2%and 4%,respectively;TPs unchanged at HKD11.0/RMB9.5 7 Equities Transportation Infrastructure 15 May 2019 Jiangsu Expressway estimate changes 2019e new 2019e old Diff(%)2020e new 2020e old Diff(
45、%)Profit&Loss Revenue Tolling 7,858 7,828 0.4%8,317 8,204 1.4%Ancillary services 1,553 1,650-5.9%1,796 1,884-4.7%Property sales 1,469 1,507-2.5%1,195 1,055 13.3%Advertising,prop service fees&others 59 66-11.3%63 70-10.8%Total Revenue 10,939 11,051-1.0%11,370 11,213 1.4%Total operating costs-5,822-6,
46、167-5.6%-6,116-6,372-4.0%Operating costs-5,016-5,117-2.0%-5,291-5,295-0.1%Business tax-112-174-35.8%-120-186-35.2%Selling expenses-51-43 18.2%-52-43 20.6%Administration-167-261-36.2%-170-266-36.2%Finance costs-476-572-16.7%-482-582-17.1%Impairment losses of assets 0 0 NA 0 0 NA Add:Gains from change
47、s in fair values 2 0 NA 0 0 NA Investment income 560 705-20.7%560 721-22.3%Including:investments in associates and JCEs 553 541 2.2%553 557-0.6%Operating profit 5,679 5,589 1.6%5,814 5,562 4.5%Non-operating income 1 53-97.6%1 54-97.6%Non-operating expenses-13-45-72.1%-13-46-71.4%Profit Before Tax 5,
48、668 5,598 1.2%5,803 5,570 4.2%Tax Expense-1,280-1,264 1.3%-1,312-1,253 4.7%Minority interest-109-105 3.2%-112-108 3.2%Net Profit After Tax 4,279 4,228 1.2%4,379 4,209 4.0%EPS 0.85 0.84 1.2%0.87 0.84 4.0%DPS 0.47 0.44 5.0%0.48 0.44 8.0%Source:HSBC estimates Jiangsu Expressway 1Q19 results(RMBm)1Q19 1
49、Q18 YoY Revenue Tolling 1,860 1,721 8%Ancillary services 305 349-13%Property sales 188 737-74%Advertising,prop service fees&others 9 15-41%Total Revenue 2,362 2,823-16%Total operating costs-1,140-1,548-26%Operating costs-948-1,298-27%Business tax-26-84-69%Selling expenses-9-3 248%Administration-41-4
50、1 0%Finance costs-116-121-5%Add:Gains from changes in fair values 2 1 102%Investment income 145 85 70%Including:investments in associates and JCEs 143 82 75%Operating profit 1,369 1,361 1%Non-operating income 0 0 236%Non-operating expenses-3-5-49%Profit Before Tax 1,367 1,356 1%Tax Expense-307-318-3
