Huachuang Securities·2025-05-14 13:30Investment Rating - The report maintains a "Strong Buy" rating for Sichuan Chengyu [2][8] Core Views - The report emphasizes that there is still a significant expectation gap in the market regarding Sichuan Chengyu, despite its strong performance in revenue growth and cash dividends [6][8] - The analysis is based on four dimensions: asset quality, dividend capability, earnings growth certainty, and future growth potential [6][8] Summary by Relevant Sections 1. Asset Quality - The company's road assets are strategically located, with toll revenue growth and profitability ranking among the industry leaders. The toll revenue has a compound annual growth rate (CAGR) of 11% over the past three years, second only to China Merchants Highway [6][9] - The overall profitability of the company's road assets is also among the highest in the industry, with a toll gross margin of 59.6% in 2024, just behind Guangdong Highway and Anhui Expressway [9][21] 2. Dividend Capability - The company has shown a strong commitment to returning value to shareholders, with a dividend payout ratio increased to over 60% in 2023 and maintained in 2024, resulting in a dividend yield of 5.05%, making it the only highway stock in A-shares with a yield above 5% [6][30] - Capital expenditures are expected to decline, with a projected free cash flow of 650 million in 2024, indicating a stronger and sustainable internal cash dividend capability [9][30] 3. Earnings Growth Certainty - Future earnings growth is expected to be driven by natural growth in traffic and toll revenue, with financial expenses likely to decrease significantly. The company is expected to benefit from a long-term interest rate decline [9][10] - The company has a seven-year performance commitment for the second ring road, providing significant growth support and profit elasticity in the medium to long term [9][10] 4. Growth Potential - The company is seen as undervalued in terms of growth potential, with a low asset securitization rate compared to other provinces. The integration of high-quality road resources with the support of the Shudao Group is ongoing [9][10] - The report draws parallels with Anhui Expressway, which has successfully achieved a virtuous cycle of "market value-dividend-assets" since 2021, suggesting a similar path for Sichuan Chengyu [9][10] 5. Investment Recommendations - The report maintains profit forecasts for 2025-2027 at 1.58 billion, 1.71 billion, and 1.84 billion, with corresponding earnings per share (EPS) of 0.52, 0.56, and 0.60, and price-to-earnings (PE) ratios of 11, 10, and 10 times [10][11] - The target price is set at 7.75 yuan for A-shares and 6.01 HKD for H-shares, indicating a potential upside of 35% and 39% from the current prices, respectively [10][11]