Core Viewpoint - Sichuan Expressway Company Limited is initiated with an OUTPERFORM rating and target prices of Rmb6.85 for A-shares and HK$5.61 for H-shares, indicating strong potential for growth and attractive dividend yields [1][9] Investment Positives - The company possesses core road assets in Chengdu and Chongqing, totaling approximately 900 km, which are highly profitable due to strong regional transportation demand [1] - The operational maturity of the firm is reflected in its average gross margin of 52.8% over the past decade, positioning it among the highest in the industry [1] - Continued reinvestment in the main business is expected to enhance profit growth potential, with ongoing projects like the Chengle Expressway reconstruction and expansion [2][8] - The firm has secured a capital contribution of Rmb4.9 billion for the Chengya Expressway expansion project, with a toll collection period of nearly 30 years [3] - The acquisition of the Chengdu Second Ring (Western) Expressway is projected to contribute Rmb160 million in profit in 2025, along with additional compensation [4] Dividend and Valuation - The company aims for a dividend payout ratio of at least 60% from 2023 to 2025, significantly increasing shareholder returns [5] - The expected dividend yield for 2024 is 5.2%, with projections of 5.5% for 2025 and 5.8% for 2026, making it attractive within the toll road industry [6][9] - The target price for A-shares implies a P/E ratio of 13.3x for 2025, with a 21.9% upside potential, while H-shares imply a 10.0x P/E ratio with a 14.5% upside [9] Market Differentiation - The market's concern regarding the short toll collection period of core road assets is countered by the firm's ability to extend this period through strategic reconstruction, expansion, and M&A [7] - High-quality road assets and sustainable earnings growth potential differentiate the company from market perceptions [7]
SICHUAN EXPRESSWAY(00107.HK)：CORE ASSETS IN CHENGDU AND CHONGQING; A“HIDDEN CHAMPION” OF EXPRESSWAY BUSINESS