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Fujian Expressway:Below expectations on asset write-down; valuation demanding; Sell

发布时间:2011-04-21    研究机构:高盛高华证券

What surprised us.

After market close on April 20, Fujian Expressway reported 2010 net profitof Rmb529 mn (-20% yoy), 17% below our expectation of Rmb638 mnmainly due to Rmb118 mn of asset write-down and impairment. Thisrelated to demolished original facilities that gave way for the Rmb15.6bnwidening project on Quanxia (8-lane widening completed in September2010) and Fuquan (8-lane widening partially completed in January 2011).

Other key highlights include: (1) EBIT margin declined 2.2 pp yoy to 66%in 2010 as revenues decreased 4% yoy, negatively affected by roadwidening work and competition from HSR. (2) Losses at its 29.8%-ownedPunan expressway widened to Rmb23.4 mn in 2010 from Rmb21.3 mn in2009. Management disclosed its continued intent to acquire its parentcompany’s remaining stake in Punan expressway. (3) Dividend payoutsurprised on the upside at 50% (Rmb0.10 per share) vs. our expectation of30%.

What to do with the stock.

We reiterate our Sell rating on Fujian Expressway, as we believe the stockremains overvalued at 1.03X EV/GCI vs. the expressway sector average of1.08X while delivering sub-par cash returns on cash invested of 7% (vs. thesector average of 12%). We fine-tune our 2011E-2013E by -3% to 0% toreflect our latest traffic and cost assumptions. Our 12-month Director’s Cut(EV/GCI-based) target price remains unchanged at Rmb2.70 based ontarget EV/GCI of 0.91X, implying 12.6X 2011E P/E and 1.0X 2011E P/B.

Key upside risks: Higher-than-expected traffic growth, favorableregulations on toll rate, and lower-than-expected diversion to HSR.

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