Investment positives
　　We resume coverage on Shenzhen International with an OUTPERFORM rating and a target price of HK$7.61, implying dividend yields of 7.5% and 9.9% in 2024 and 2025.
　　Why an OUTPERFORM rating?
　　Transformation of Southern China Logistics Park to unleash land value. According to the firm’s announcement, the firm has signed a land agreement with the government of the Longhua District of Shenzhen for the 530,000sqm land preparation project in the first phase of the South China Logistics Park. According to the agreement, the firm will receive Rmb1.06bn in compensation for demolition and obtain the usage rights for 108,700sqm (with a GFA of about 694,200sqm). Based on the Qianhai project, we estimate that land appreciation and housing development income from the South China Logistics Park project will reach Rmb13.2-15.5bn in the next 6-8 years.
　　Recurring profit stable: 1) Toll roads and environmental protection: Shenzhen Expressway is the main contributor to the firm's profit. We expect earnings to grow steadily after the opening of the Yanjiang Phase II project this year. 2) Logistics parks and logistics services: Revenue from logistics parks grew at a CAGR of 17.9% in 2017- 2023. According to the firm’s annual report, about 1.53mn sqm of logistics parks will commence operation in 2024-2025, which we believe will support sustained growth in the logistics park business. Additionally, the divestment of public REITs in 2024 should boost earnings.
　　Solid dividend policy and attractive dividend yield. The firm has maintained a stable dividend policy, distributing cumulative dividends of HK$15.65bn in 2013-2023, with an average payout ratio of 51.0% over the past five years. Based on this year's earnings forecast, including our estimate that the South China Logistics Park will generate land appreciation income of approximately HK$2bn in 2024 and HK$3.1bn in 2025, and assuming a 50% dividend payout, the current price implies dividend yields of 9.0% and 11.8% in 2024 and 2025, which are attractive.
　　How do we differ from the market? While the market is concerned about the sustainability of the firm's dividend payout, we believe that land appreciation income and income from the development and operation of the South China Logistics Park will sustain over the next 6-8 years. The firm has maintained a stable dividend policy in the past. Despite the maturity mismatch between cash flow and profit, we believe the firm can sustain its dividend payout ratio.
　　Potential catalysts: Recognition of income from land transformation of Southern China Logistics Park Phase I.
　　Financials and valuation
　　We expect the firm’s EPS to be HK$1.13 in 2024 and HK$1.49 in 2025, implying a CAGR of 37.0%. The stock is trading at 5.6x 2024e and 4.2x 2025e P/E. We use the dividend yield method for valuation, and the current price of the H-share toll road sector implies an average dividend yield of 7.5% in 2023. Based on this dividend yield, we set a target price of HK$7.61 for the firm, implying dividend yields of 7.5% in 2024 and 9.9% in 2025, offering 20.8% upside. We resume coverage on Shenzhen International with an OUTPERFORM rating.
　　Risks
　　Economic growth disappoints; land prices and progress of Southern China Logistics Park disappoint; real estate sales disappoint.