Beijing-Shanghai High Speed Railway (601816) 长江证券·2024-03-02 16:00Investment Rating - The report maintains a "Buy" rating for Beijing-Shanghai High-Speed Railway (601816 SH) [4] Core Views - Beijing-Shanghai High-Speed Railway benefits from its natural geographical advantage, connecting the Beijing-Tianjin-Hebei and Yangtze River Delta economic zones, which provides a stable flow of passengers and profitability [4] - The company's business model, based on a delegated transportation management system, allows for stable cash flow generation despite limited reinvestment needs due to its long-term assets (railway lines, land, and stations) [4] - The company's network effect is strengthened through mergers and acquisitions, such as the acquisition of Jingfu Anhui in 2020, which expanded its regional network [4] - The company faces rigid cost pressures, particularly from labor costs, due to the "comprehensive unit price + compound growth" pricing mechanism for delegated transportation management fees [4] - The company's long-term growth potential is supported by both external acquisitions and internal price adjustments, with projected net profits of 11 3 billion, 13 1 billion, and 15 0 billion for 2023-2025, respectively [6] Business Model and Operations - The company operates under a delegated transportation management model, where railway network companies and transportation companies share responsibilities and revenues based on line-specific and cross-line services [4] - For line-specific services, ticket revenue goes to the network company, which pays the transportation company for train usage, while for cross-line services, ticket revenue goes to the transportation company, which pays the network company for network usage [4] - The company's profitability is closely tied to national railway passenger volume, with historical data showing a strong correlation between the two [27] - The company's capacity is nearing saturation, with growth in both line-specific and cross-line services slowing down before 2020 [5] - The company has implemented two phased price increases for terminal ticket prices, reflecting the opening of market-oriented pricing mechanisms for high-speed rail [5] Financial Performance and Projections - The company's revenue and profit are expected to grow steadily, with projected revenues of 41 9 billion, 44 7 billion, and 47 7 billion for 2023-2025, respectively [6] - Net profit attributable to shareholders is projected to be 11 3 billion, 13 1 billion, and 15 0 billion for 2023-2025, with corresponding P/E ratios of 22x, 19x, and 17x [6] - The company's cost structure includes fixed costs such as delegated transportation management fees and depreciation, as well as variable costs like energy expenses, which are linked to business volume [38] Industry and Market Position - Beijing-Shanghai High-Speed Railway holds a stable position in the national railway network, with a steady share of passenger volume despite a declining share of total mileage [4] - The company benefits from the network effect of China's high-speed rail system, which is the largest in the world, providing significant growth opportunities through mergers and acquisitions [21] - The company's geographical advantage is further enhanced by the economic and population distribution in the regions it serves, with potential for further growth in passenger demand [24]