China Merchants Expressway Network Technology (001965) 长江证券·2024-03-06 16:00Investment Rating - The report assigns a "Buy" rating to the company, with a target PE valuation of 10.3X for 2023, 9.3X for 2024, and 8.5X for 2025 [4][7] Core Investment Thesis - The company is a leading highway operator with strong growth drivers, benefiting from its central SOE background and nationwide acquisition of high-quality road assets [2][3] - It has a young portfolio of road assets and a comprehensive highway industry chain layout, providing ample endogenous growth momentum [2][3] - With traffic volume returning to natural growth, profitability is expected to steadily improve [2][3] - The company maintains a high dividend policy, with a dividend payout ratio of no less than 55% from 2022 to 2024, and a 2023 dividend yield of 5.5% [4][7] Company Overview - The company is the largest highway investment and operation service provider in China, with a total operating mileage of 12,914 km as of 2022, ranking first in the industry [3][13] - It operates under a unique investment platform model, with investment income accounting for nearly 70% of operating profit in 2022 [3][13] - The company has a diversified portfolio of road assets across 15 provinces, autonomous regions, and municipalities, with significant regional advantages and strong profitability [3][13] Growth Drivers - The company has achieved a revenue CAGR of 13.0% and a net profit CAGR of 8.0% from 2014 to 2019, driven by both acquisitions and organic traffic growth [3][29] - It has a strong track record of acquiring high-quality road assets, with IRR for key projects exceeding 11%, higher than industry averages [3][29] - The company has expanded its business along the highway industry chain, including transportation technology, smart transportation, and ecological services, creating synergies [3][29] Industry and Traffic Recovery - Highway traffic volume has significantly recovered since 2020, with national road network traffic increasing by 18% YoY in December 2023, and highway traffic up 11% YoY [4][54] - In H1 2023, the company's revenue increased by 20% YoY to RMB 4.28 billion, returning to 2019 levels, while net profit rose 19% YoY to RMB 2.81 billion, marking the best half-year performance since listing [4][54] Financial Performance and Valuation - The company is expected to achieve net profits of RMB 6.67 billion, RMB 7.38 billion, and RMB 8.07 billion in 2023, 2024, and 2025, respectively, with corresponding PE valuations of 10.3X, 9.3X, and 8.5X [4][7] - It maintains a strong cash flow position, with operating cash flow and investment income covering capital expenditures and investment needs [4][54] - The company has a healthy asset structure and a steadily increasing dividend payout ratio, reaching 53% in 2022 [4][54]