Daqin Railway(SH:601006)2025-10-13 01:00Summary of Daqin Railway Conference Call Company Overview - Company: Daqin Railway - Industry: Coal Transportation - Market Position: Largest coal transport railway company in China with a 25% market share [2][18] Key Investment Thesis - Rating: Overweight (OW) with a price target (PT) of Rmb7.50 by December 2026, indicating a potential upside of approximately 27% [2][18] - Dividend Yield: Expected to be around 4% for FY25E/26E, significantly higher than China's risk-free rate of 1.7% [18][67] Financial Performance and Projections - Recent Performance: Daqin's share price has underperformed since 2024, declining 6% in 2024 and 13% year-to-date [18] - Earnings Recovery: Anticipated inflection point for earnings, dividends per share (DPS), and return on equity (ROE) starting in 2H25, following a period of decline [8][20] - Earnings Estimates: Projected revenue growth of 1-3% annually from FY25E to FY27E, with net profit expected to recover after bottoming in FY25E [21][48] Financial Metrics - Current Valuation: Trading at approximately 5.3x EV/EBITDA for FY26E, below its historical average of 5.5x, and a P/B ratio of 0.7x [22][18] - Cash Flow: Strong free cash flow (FCF) yield of over 10%, with operational cash flow consistently at 1.25x net profit over the past decade [8][66] Shareholder Returns - Dividend Policy: Daqin has a robust payout ratio of around 55%, with a commitment to maintain this level [8][62] - Share Buyback: Initiated its first-ever buyback plan in 1H25, adding approximately 1% yield to the FY26E dividend yield [8][20] Market Dynamics - Coal Transportation Demand: Benefiting from China's shift from road to rail freight, with rail's share of coal transportation increasing to 57% in 2024 [51][52] - Regulatory Environment: Facing challenges from decarbonization policies and subdued demand in key markets such as property and steel [8][11] Risks - Investment Risks: Includes structural downturns due to decarbonization trends, subdued coal demand, and competition in the coal transportation market [8][11] - Conservative Forecasts: The forecasts incorporate a cautious approach with a 1% volume CAGR and a -5% terminal growth rate in the DCF model [8][11] Conclusion - Outlook: Daqin Railway is positioned for recovery with a strong commitment to shareholder returns, attractive valuation metrics, and a favorable market shift towards rail transportation. However, it must navigate regulatory challenges and market competition to realize its potential [11][18][22]