Summary of Beijing-Shanghai HS Rail (601816 CH) Research Report Company Overview - **Company**: Beijing-Shanghai High-Speed Rail (BSHSR) - **Ticker**: 601816 CH - **Sector**: Transportation Infrastructure - **Market Cap**: CNY 250,010 million (USD 35,474 million) [8][16] Key Points Earnings Growth and Valuation - The company's share price has corrected by 9% since July, while the CSI 300 index increased by 16% during the same period, primarily due to weak traffic earlier this year [2][3] - BSHSR is expected to improve profitability through train mix optimization and fare discount reductions [2][3] - The stock is currently trading at a 1.2x 2026 estimated price-to-book (PB) multiple, below its historical mean of 1.4x [2] - Projected return on equity (ROE) for 2026 is 6.7%, above the historical average of 6.2%, indicating an attractive valuation [2] Traffic and Revenue Growth - Main-line train passenger traffic is expected to show low single-digit year-on-year growth in Q4 2025, recovering from a 1.6% decline in the first three quarters of 2025 [3] - The company plans to optimize its train mix by increasing the proportion of long-distance trains and reducing fare discounts to maintain revenue growth, although the effectiveness of these measures may diminish in 2026 [3][20] Profitability Improvement - BFHSR Anhui's net profit surged approximately 300% year-on-year to around RMB 170 million in Q3 2025, with expectations for further increases in traffic and profitability after the Xiongan-Shangqiu HSR begins operations in September 2026 [4] - Financial costs for BFHSR Anhui decreased by 21% year-on-year in the first three quarters of 2025, with expectations for continued declines in interest expenses [4] CR450 Train Deployment - The new CR450 high-speed train, capable of operating at 400 km/h, is expected to be commercially available by the end of 2026, potentially enhancing BSHSR's competitiveness against airlines [5] - Anticipated travel time between Beijing and Shanghai could decrease from 4.3 hours to 3.5 hours, increasing the attractiveness of rail travel [5] Financial Estimates and Target Price - The target price for BSHSR has been raised to RMB 6.90 from RMB 6.70, implying a 35% upside from the current share price of RMB 5.11 [6][8] - Net profit estimates have been increased by 1% for 2025 and 2026, while a 1% decrease is projected for 2027 [6][22] - The weighted average cost of capital (WACC) assumption has been lowered to 7.05% from 7.35% [6][27] Risks and Considerations - Key downside risks include macroeconomic headwinds affecting passenger traffic, lower-than-expected earnings from BFHSR Anhui, and potential limitations on ticket price increases [31][32] - The company holds a 65.1% stake in BFHSR Anhui, which may expose it to risks if the latter's earnings do not meet expectations [32] Financial Performance Metrics - Revenue projections for 2025 are CNY 43,262 million, with expected growth rates of 2.6% in 2025 and 4.1% in 2026 [13][14] - EBITDA is projected to be CNY 24,996 million in 2025, with a margin of 57.8% [13][14] - The company is expected to maintain a dividend yield of 2.7% in 2025 [15] Conclusion - BSHSR is positioned for potential growth driven by traffic recovery, operational improvements, and the introduction of new high-speed trains. The current valuation appears attractive, but investors should remain cautious of macroeconomic risks and operational challenges.