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 increasedby 4.7% yoy to RMB977 million. Looking ahead, we expect domesticeconomy of China to stabilize and the Company’s major expressways tocontinue the organic growth.
We revise revenue and earnings estimates based on the updated estimatesfor toll road business. We revise up FY15 and FY16 net profit estimates by9.5% and 2.2%, respectively, and initiate FY17 net profit estimate ofRMB897 million.
We think the Company’s toll road business has stabilized and it will take along time for the Ningxuanhang Expressway to start to make a significantcontribution to the Company. Considering the peers valuation and historicalvaluation of the Company, we think its shares are fully valued at present andupside potential is limited. Therefore, we downgrade the investment ratingto “Neutral”. However, we revise up our TP to HK$8.00 to reflect thehigher sector valuation due to the Shanghai-Hong Kong Stock Connect,which pushes up valuations of Hong Kong-listed stocks. Our TP represents12.6x, 12.3x and 11.8x FY15-FY17 PER, respectively.