Revenue increased by 3.0% yoy to RMB630 million in 1Q15. However, investment income decreased by 97.3% yoy to RMB1.9 million. As a result, shareholders’ profit decreased by 14.1% yoy to RMB223 million in 1Q15, in-line with our expectations.
The Company released operational statistics for the first five months of 2015. During the period, total toll revenue of the Company’s expressways increased by 4.7% yoy to RMB977 million. Looking ahead, we expect domestic economy of China to stabilize and the Company’s major expressways tocontinue the organic growth.
We revise revenue and earnings estimates based on the updated estimates for toll road business. We revise up FY15 and FY16 net profit estimates by 9.5% and 2.2%, respectively, and initiate FY17 net profit estimate of RMB897 million.
We think the Company’s toll road business has stabilized and it will take a long time for the Ningxuanhang Expressway to start to make a significant contribution to the Company. Considering the peers valuation and historical valuation of the Company, we think its shares are fully valued at present and upside potential is limited. Therefore, we downgrade the investment rating to “Neutral”. However, we revise up our TP to HK$8.00 to reflect the higher sector valuation due to the Shanghai-Hong Kong Stock Connect, which pushes up valuations of Hong Kong-listed stocks. Our TP represents 12.6x, 12.3x and 11.8x FY15-FY17 PER, respectively