In the first three quarters of 2008, operating revenue and net profit of the company increased by 27.2% and 34.6% respectively with basic EPS of Rmb0.44, beating that of 2007; of which, Q3 EPS stood at Rmb0.13, basically in line with our anticipation.
Charging by weight, vehicle flow and assets acquisition were the main driving forces for fast-growing profit.
Partial negativity began to emerge in Q3. 1) Vehicle flow growth was affected by economic elements, high oil cost and strengthening construction projects; increment of average daily vehicle flow dropped in Fuzhou-Quanzhou Expressway and Quanzhou-Xiamen Expressway, of which truck flow suffered more obvious decline; 2) Owing to construction project costs and assets acquisition, financial expenses were added by nearly Rmb32mn, an increase of 380% yoy. These factors will shave profit growth and exist in medium-short term.
Fuzhou-Quanzhou Expressway and Quanzhou-Xiamen Expressway are expected to enter intensive construction period in 1H2009 and to be completed by end 2010, thereinto the project will be divided into several segments; besides, sky-high expenses (Rmb15.4bn) of the construction, follow-up increasing holdings of Pucheng-Nanping Expressway and uncertainties in additional issuance will greatly enhance the financial expenses, and the company will suffer from financial strain; these factors will affect the medium-short term investment value.
We forecast 2008-2010E EPS to be Rmb0.54, Rmb0.50 and Rmb0.45, representing P/E ratio of 9.4x, 10x and 11x separately, being comparatively industrial low. Since the company’s maintenance expense and depreciation cost will decline during the construction, we predict profit decline to be probably under our expectation, thus we maintain “Overweight” rating for the moment considering prominent investment value afterwards.