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Fujian Expressway:earnings impacted by road work and rail

时间:2010-08-24    机构:高盛高华证券

What surprised us。

After market close on August 23, Fujian Expressway (FJE) reported 1H10net profit of Rmb371 mn, a decline of 2.3% yoy. This was mainly due to a10% decline in toll revenues on FJE’s Fuzhou-Quanzhou Expressway, inline with our expectations, as toll traffic was affected by road wideningwork (4 to 8 lanes) and the opening of High Speed Rail (HSR) betweenXiamen and Fuzhou since April 26, 2010. Toll business gross margindeclined 1ppt yoy in 1H10 to 81%. Investment losses at FJE’s 30%-ownedPunan Expressway reached Rmb27mn in 1H10 from Rmb25mn a year ago,which was partly impacted by heavy rainfalls in May and June this year.

What to do with the stock。

We have tweaked our 2010/2011/2012E EPS by 3%/3%/3% on updatedtraffic assumptions. We expect the 8-lane Quanxia Expressway tocommence full operations in early September this year and the 8-laneFuquan Expressway by 1H11. However, we do not expect a substantialpick-up in earnings due to higher operating costs, depreciation and financecosts after completion of both widening projects. We raise our Director'sCut (EV/GCI-based) 12-month target price of Fujian Expressway toRmb3.10 from Rmb2.90, implying 2011E P/B of 1.2X and P/E of 15X. Wemaintain our Sell rating on FJE.

Key risks: Higher-than-expected traffic growth, favorable regulations ontoll rate, and lower than expected diversion to HSR