07 results met expectations. For 07, the company reported revenue of 3.154 billion yuan (+24.11% YoY), net profit of 1.165 billion yuan (+28.16% YoY), and EPS of 0.346 yuan, basically in line with our projection of 0.34 yuan. Additionally, the company proposed payout scheme of 1.56 yuan cash (before-tax) for every 10 shares.
Fast-growing income from Jiqing Expressway and Yellow River Bridge II drove up earnings. During the period under review, Jiqing Expressway’s daily traffic grew 24% YoY and revenue rose 26.7% YoY due to changing weight charges; Yellow River Bridge II sustained outstanding performance in the previous period and realized 15% and 27.64% YoY increases of daily traffic and revenue respectively. The two contributed to 92.3% of toll income and 79.5% of operating income. This was the main reason behind earnings growth. However, because of traffic divergence and major maintenance, other expressways and bridges failed to make hefty contribution to earnings.
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Earnings forecast and rating. Due to operation of Jilai Expressway, traffic outflow from Jiqing Expressway will escalate operating and financial expenses. Regardless of asset acquisition, we lower our 08-09E EPS forecast to 0.4 yuan (implied PER of 22.4x) and 0.46 yuan (implied PER of 19.4x) from 0.42 yuan and 0.47 yuan respectively. Valuation of Shandong Expressway exceeds sector average. However, our OVERWEIGHT rating on the stock remains intact, considering possible acquisition of Jide Expressway and opening of Jilai Expressway will pad up corporate earnings from a mid- and long-term perspective.