Domestic & Intl Highway Stocks: Fundamental Comparison & Industry Analysis!
China's expressway construction began in the 1980s.
After 40 years of economic growth and urbanization, the expressway industry has developed rapidly and has become a rare high-quality asset in the A-share market!
This article includes 30 global expressway listed companies, mainly stocks from Australia, France, Italy, and China.
Below, we will look at the latest fundamentals and valuations of these stocks from a global perspective, as well as which A-share stocks are worth paying attention to!
(1) There are about 20 domestic expressway listed companies, which are basically the investment and operation entities of toll roads formed by various provinces.
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The controllers are mostly provincial state-owned assets or transportation departments, and some companies have cross-shareholding phenomena.
Most of these companies are listed on the A-share market, some in Hong Kong, and there are also a few that are listed in both places.
They have concentrated most of the toll road network resources within the province, and their financial fundamentals are quite similar, which will be introduced one by one later.
(2) Foreign expressway listed companies have much larger market values and valuations than ours.
First, the industry concentration in their own countries is higher than ours; we have one per province, and the market is divided.
Second, the scope of roads they invest in and operate is already a global layout.
Third, their stock markets are more enthusiastic about such high-quality assets.
Transurban, listed in Australia, is the largest expressway construction and operation company in Australia.
Atlantia, listed in Italy, has not only expressways but also airports.
It has road rights assets in countries such as Italy, Brazil, and Chile.
Getlink, listed in France, is the company that operates and manages the English-French Channel Tunnel.
Atlas Arteria, listed in Australia, is a global road rights development and operator, with main road rights assets in France, the United States, and Germany.
Bangkok Expressway and Metro, a Thai expressway construction and operation company, also provides subway services.
(1) Business model: Expressways belong to weak cyclical industries.
Although the initial investment is large, the middle and later stages are cash cows with a long return cycle, making them quite a good investment.
Most expressways are operated under concessions, with little industry competition.
The operating rights are generally 30 years, and the operating period can be re-determined through road expansion and construction.
Mature high-quality road networks in China often do this to extend the charging period.
Because the road assets have a strong public product attribute, the charging standards are controlled by the state, and companies do not have independent pricing rights, and the prices are rigid.
(2) Revenue and expenditure structure: The revenue structure of domestic expressway companies is generally based on tolls and service area income.
The next is the income confirmation during the construction period (this is the accounting method in China, with a gross margin of zero and no profit contribution), which will have a significant impact on the company's net profit margin, expense ratio, and other indicators, so it needs special attention!
Most companies will reuse the land resources on both sides of the expressway, so there are also some cross-industry incomes such as real estate, usually accounting for a small proportion.
In addition, some companies also want to explore models such as "transportation + camps, leisure towns, health vacation, expressway + wind power, photovoltaic, storage," which are very meaningful, but the results are limited.
In terms of cost expenditure, maintenance, road management labor and other expenses generally have a small impact, and the depreciation and amortization of the current operating rights account for the majority, while the financial expenses generated by financing have a greater impact.
(3) Growth drivers: Because the price of tolls is rigid, traffic volume has become the key factor in revenue.
The size of the traffic volume depends on the number of vehicles, the location of the road production area, the penetration of the road network, and the level of local economic development.
With economic development, China's vehicle ownership and road transportation demand are steadily increasing, which is the core growth driver of toll revenue.
However, as the density of the road network continues to increase, the high-quality road asset resources are becoming less and less!
The newly built high-speed road network in recent years will face the dilemma of increasing project construction costs.
First, the demolition cost is high, second, the cost of labor and materials is expensive, and third, the terrain construction conditions are complex.
If the traffic volume cannot keep up, it will greatly squeeze the profit space of new projects, and even in remote areas, the investment cost cannot be recovered.
(1) European and American valuation: Foreign countries recognize such high-quality assets with stable cash flow.
Although the performance of several foreign companies fluctuates greatly, and the price-earnings ratio is not comparable; their price-to-book ratio is mostly more than 3 times, and the low ones are also around 1 time.
(2) A-share valuation: The valuation given by A-shares should be divided into two stages: originally, everyone was about the same, with an average price-earnings ratio of about 12 times; but in the past two years, the stock prices of the leading companies have risen sharply, and the valuation has been pulled apart, with the high ones reaching 16 times.
From the perspective of assets, the price-to-book ratio is generally less than 1 time.
I think the valuation treatment given domestically is a bit unfair.
In the future trend where high-yield assets are increasingly difficult to find, high-yield assets such as expressways will continue to be sought after.
(3) Hong Kong stock valuation: The valuation given by the Hong Kong market to expressway listed companies is even lower, and it is normal to be 30% lower than A-shares.
For example, leading companies like Ninghu Expressway have a nearly double valuation difference between A-shares and Hong Kong stocks.
The reasons for the low valuation of such assets in Hong Kong stocks are: first, the liquidity problem of Hong Kong stocks; second, different investment preferences, and Hong Kong prefers consumer stocks, which are not very interested in heavy asset stocks; third, there is not much trust in domestic assets.
For other industries, it is hard to say, but for China's heavy asset infrastructure state-owned enterprises: they have performance, and they have money, which is a first-class high-quality asset.
The gold content of the fundamentals is far higher than that of similar foreign assets.
The fundamentals of many domestic expressway listed companies mainly have the following characteristics: (1) Stable performance and strong profitability.
Except for special circumstances such as the impact of the 2020 epidemic, the leading companies of expressways have basically maintained an upward trend in performance.
The net profit margin is mostly above 20%, and some companies are as high as 40%.
The return on net assets of many companies is not high, below 10%, and the high ones are just over 10%.
The main reason is that domestic expressway companies have a large amount of undistributed profits, which account for more than 40% of the market value, and some are even more than 60%.
(3) Active expansion and high financial costs.
Most companies have a debt ratio of more than 50%, and the scale of interest-bearing borrowing is quite large.
Although it is mainly long-term borrowing, if the proportion of short-term borrowing of some companies is too high, it needs special attention.
The financial cost rate is generally more than 7%, and some companies have low capital utilization efficiency, and the financial cost rate even exceeds 15%.
A few companies have a financial cost rate below 3%, which may be a sign of insufficient new projects and also reflects issues such as insufficient future growth potential.
(4) Abundant operating cash flow and high dividend yield.
Because the old road network has been operating for many years and is quite mature, the operating cash flow is very abundant.
The direct result is that the dividend yield is relatively high, and it is a rare high-quality asset for defensive investment.
However, their free cash flow is often insufficient because these companies are still actively expanding the road network, and the fixed asset investment is significantly greater than the net operating cash flow.
At the same time, the profit space of new projects is limited, and the future cash flow growth curve may be lower.
Expressway companies are among the earlier batch of companies listed on China's A-share market.
They have quite high-quality road rights assets and occupy a more favorable position.
Their performance growth is continuous and stable.
However, it is strange that there are very few national teams such as the social security fund.
Even if the stock price has been rising in recent years, they are not seen among the top ten shareholders.
From my personal perspective, I think that leading companies with high dividend yields, small performance fluctuations, and reasonable financial costs are worth paying attention to.
These companies mainly include: China Merchants Highway, Ninghu Expressway, Shandong Expressway, Wantong Expressway, Fujian Expressway, and so on!
(1) China Merchants Highway 001965: Behind China Merchants Highway is the powerful China Merchants Group, with a national layout of the road network.
Most of the top three shareholders of A-share expressway stocks are it.
It has the first market value, but its revenue is not on the list, but the profit is considerable.
Revenue structure: in the first half of 2024, 80% was investment and operation, 15% was transportation technology, 2% was intelligent transportation, and 1.8% was transportation ecology.
Revenue is concentrated in the Southwest and East China regions.
Performance: in 2023, revenue increased by 49%, and profit decreased by 4.2%.
In the first half of 2024, revenue increased by 39.7%, and profit decreased by 3.6%.
The gross margin is 37%, and the net profit margin is 51%, with a significant contribution from investment income.
The debt ratio is 47%, which is basically long-term borrowing, and the financial cost rate is 14.8%.
The latest dividend yield is 4.4%, and the undistributed profit accounts for 25% of the market value.
The TTM price-earnings ratio is 12.3 times.
(2) Ninghu Expressway 600377: Ninghu Expressway is affiliated with Jiangsu Province's state-owned assets, basically operating toll roads and bridges within Jiangsu Province, and China Merchants Highway is the second-largest shareholder.
It has been listed for a long time, has the second-largest market value, and has a considerable revenue volume.
It is the most famous expressway company in China and is very popular with foreign capital.
Revenue structure: in the first half of 2024, 45% was tolls, 40% was construction period income, 8.5% was service area and other supporting services, and 3.5% was wind and photovoltaic power generation.
Among them, the Shanghai-Nanjing Expressway line accounts for 25%, Ningchang Expressway and Zhenli Expressway account for 7%, Wufeng Bridge accounts for 5%, and Guangjing Expressway and Xicheng Expressway account for 4.4%!
Performance: in 2023, revenue increased by 14.6%, and profit increased by 18.5%.
In the first half of 2024, revenue increased by 40%, and profit increased by 10.7%.
The gross margin is 30%, and the net profit margin is 29%.
The debt ratio is 47.2%, which is in the middle and lower level of the industry, mainly long-term borrowing, and the financial cost rate is 4.8%.
The latest dividend yield is 3.4%, and the undistributed profit accounts for 20% of the market value.
The TTM price-earnings ratio is 15 times, which is quite high in the industry.
(3) Shandong Expressway 600350: Shandong Expressway is affiliated with Shandong Province's state-owned assets, and China Merchants Highway is the second-largest shareholder.
It has the largest revenue volume and a rich source of income, with the most substantial franchised road network assets!Revenue Structure: In the first half of 2024, 29% was Shandong Province toll revenue, 26% was construction service revenue, 10% was electromechanical engineering construction revenue, 9.5% was railway transportation revenue, 9.5% was sales revenue, 4.2% was Hubei Province toll revenue, and 2.5% was highway management revenue.
Performance: In 2023, revenue increased by 18.6%, and profit increased by 8.5%.
In the first half of 2024, revenue increased by 6.2%, and profit decreased by 7.2%.
Gross margin was 29%, and net margin was 16.7%.
Debt ratio was 65%, which is relatively high in the industry, mainly consisting of long-term loans, with a financial expense rate of 6.7%.
The latest dividend yield is 4.6%, and undistributed profits account for 46% of the market value.
The TTM P/E ratio is 14 times.
(4) Shenzhen Expressway 600548: Shenzhen Expressway is affiliated with the Shenzhen State-owned Assets Supervision and Administration Commission, and China Merchants Highway is the fourth shareholder.
Revenue is mainly from Guangdong Province, accounting for about 79%, but provinces such as Hunan, Xinjiang, Inner Mongolia, and Guangxi also contribute to revenue.
Revenue Structure: 65% is toll revenue, 20% is environmental income such as solid waste treatment and wind power generation, and 7.7% is construction service revenue (Shenzhen Expressway has relatively few road networks under construction, with limited growth potential in the future).
Performance: In 2023, revenue decreased by 0.8%, and profit increased by 15.4%.
In the first half of 2024, revenue decreased by 8.9%, and profit decreased by 16.7%, which is a relatively large decline in performance this year.
Gross margin is 38%, and net margin is 23%.
Debt ratio is 58.6%, which is a medium to high level in the industry, with both long-term and short-term loans being significant, and a financial expense rate of 14.88%, which is relatively high.
The latest dividend yield is 6%, and the stock price has not risen sharply in recent years.
Undistributed profits account for 41% of the market value, with a limited number of road networks under construction, and there is potential for increased dividends.
The TTM P/E ratio is 9.2 times.
(5) Anhui Expressway 600012: Anhui Expressway is affiliated with Anhui State-owned Assets Supervision and Administration Commission, and China Merchants Highway is the third shareholder, with 99% of revenue coming from within Anhui Province.
Revenue Structure: 62% is toll road business, and 37% is construction period revenue, with expansion in road network construction.
Among them, the Hefei-Nanjing Expressway accounts for 22%, the Gao Jie Expressway accounts for 13%, and the Ningxiang-Hangzhou Expressway accounts for 6.6%.
Performance: In 2023, revenue increased by 27%, and profit increased by 15%.
In the first half of 2024, revenue increased by 31%, and profit decreased by 3.5%.
Although there are short-term fluctuations in profit, the long-term trend of Anhui Expressway is good as shown in the chart below.
Gross margin is 38.5%, and net margin is 27%.
Debt ratio is 40%, which is a lower level in the industry, and the debt ratio has increased by 5 percentage points this year due to the expansion of road network construction.
It is mainly long-term loans, with a financial expense rate of 1%, which is a very low level.
The latest dividend yield is 4%, and undistributed profits account for 41% of the market value.
The TTM P/E ratio is 15 times, and the stock price trend has been very good in recent years.
(6) Fujian Expressway 600033: Fujian Expressway is affiliated with Fujian State-owned Assets Supervision and Administration Commission, and China Merchants Highway is the second-largest shareholder, with 99% of revenue coming from within Fujian Province.
Revenue Structure: Highway tolls account for 99%, and the main business is very focused.
Among them, the Fuzhou-Quanzhou Expressway accounts for 53%, the Quanzhou-Xiamen Expressway accounts for 41%, and the Luoning Expressway accounts for 4.6%.
Construction period revenue is very low, and there is almost no expansion of the road network now, it is a cash cow.
Performance: In 2023, revenue increased by 14%, and profit increased by 7.4%.
In the first half of 2024, revenue increased by 0.8%, and profit remained unchanged.
Gross margin is 60%, and net margin is 45%.
The performance stability is quite good!
Debt ratio is 19.2%, which is a very low level in the industry.
There are no long-term or short-term loans other than bonds, the cash scale is much larger than the interest-bearing loans, and the financial expense is only 1%.
Both operating cash flow and free cash flow are very good.
The latest dividend yield is 3.5%, and undistributed profits account for 62% of the market value, with a great potential for increased dividends.
The TTM P/E ratio is 10.4 times.