SZEW(SH:600548) Guotou Securities·2024-07-11 07:30Investment Rating - The report assigns a "Buy-A" rating to the company with a target price of 12.48 CNY, while the current stock price is 10.32 CNY as of July 10, 2024 [1][5]. Core Insights - The company, Shenzhen Expressway Group Co., Ltd., is a leading player in the South China highway sector, focusing on a business model that prioritizes highway operations while also venturing into environmental protection [1][43]. - The company exhibits stable performance, strong cash flow, and attractive dividend yields, making it a quality choice for "low volatility dividends" [1][2]. - The company benefits from its advantageous location, which enhances the value of its road assets, and ongoing expansion projects support the sustainability of its core business [1][2]. Summary by Sections Company Overview - Shenzhen Expressway was established in 1996 and is the first company from Shenzhen listed in both Hong Kong and Shanghai. It is controlled by the Shenzhen State-owned Assets Supervision and Administration Commission [1][43][45]. - The company operates primarily in highway management and has expanded into the environmental sector since 2020, creating a dual business model of "highway + environmental protection" [1][43]. Financial Performance - The company reported a stable revenue growth with a compound annual growth rate (CAGR) of 10.82% from 2016 to 2023. In 2023, the revenue was 9.3 billion CNY, with a slight decline of 0.8% year-on-year due to downturns in clean energy and management services [6][55]. - The net profit for 2023 was 2.33 billion CNY, with earnings per share projected to be 1.04 CNY for 2024 [6][55]. Dividend Policy - The company maintains a high dividend payout ratio, with a dividend rate of 56% in 2023, positioning it among the leaders in the industry [1][72]. - The average dividend yield in the highway sector is around 3.1%, with the company currently offering a yield of approximately 5.3%, making it attractive in a declining interest rate environment [1][67][69]. Market Position and Growth Drivers - The company is expected to benefit from the opening of the Shenzhen-Zhongshan Channel and the second phase of the Yangjiang Expressway, which will drive traffic and revenue growth [2][5]. - Long-term benefits are anticipated from new regulations that extend the duration of operating rights for highways, potentially up to 40 years, addressing sustainability concerns in the industry [2][86]. Environmental Business - The environmental segment, which includes clean energy generation and waste resource management, is showing signs of stable growth, with a 29.1% year-on-year increase in kitchen waste processing revenue [2][55]. - The environmental business currently contributes a smaller portion of total revenue but is expected to mature and enhance overall profitability in the future [2][55].