CICC has issued a research report maintaining its 2025/26 net profit forecasts for Yuexiu Transport (01052) at RMB739 million and RMB770 million, respectively, as the acquisition has yet to be finalized. The current stock price implies a 2025/26 P/E of 9.5x and 9.0x.
The firm retains its "Outperform Industry" rating, citing improved market risk appetite, which warrants a valuation premium (trading at a lower dividend yield than peers). Based on a 5.5% dividend yield, the 2025 target price is set at HK$5.13, implying a 5.8% yield for 2026. The target price has been raised by 18.2%, translating to 2025/26 P/E multiples of 10.6x and 10.1x, with a 12.2% upside from the current price.
Key highlights from CICC: 1. **Recent Developments**: Yuexiu Transport announced the acquisition of an 85% stake in the Zhanhua-Luji section of the Qinbin Expressway for RMB1.15 billion. The deal offers reasonable valuation and extends the average operational lifespan of the company’s toll roads by 0.8 years. The target’s static P/E stands at 5.0x, with projected 2025/26 P/E at 12.6x and 11.4x. The internal rate of return (IRR) is estimated at 10.43% (vs. Pinglin Expressway’s 9.2%), indicating strong profitability.
2. **Portfolio Enhancement**: The acquired section generated RMB750 million in 2024 revenue (19.5% of Yuexiu’s total). For Jan-Aug 2025, revenue and net profit reached RMB550 million (+72.5% YoY) and RMB270 million (+94.9% YoY), respectively. The acquisition is expected to diversify the asset base and alleviate pressure on existing toll roads.
3. **Profit Growth Outlook**: Due to diversion risks, toll revenue in 2026 is projected to decline 33.2% YoY (impacted by Qinbin Tianjin section upgrades and G228 Cangzhou completion). However, net profit is forecast to grow 10.5% YoY, with 2026-28 revenue/EBIT/net profit CAGRs of 7.3%/11.9%/25.5%. Debt reduction and lower financing costs are likely to drive profit expansion.
**Risks**: Delays in acquisition or expansion, higher-than-expected traffic diversion, and slower economic growth.