1H24 results in line with our expectations

Beijing-Shanghai High Speed Railway (BJ-SH HSR) announced its 1H24 results: Revenue rose 8.2% YoY to Rmb20.86bn; gross profit grew 16.3% YoY to Rmb9.89bn, with GM rising 3.3ppt YoY to 47.4%; and attributable net profit increased by 23.8% YoY to Rmb6.36bn. The company's results in 1H24 were in line with our expectations.

In 2Q24, revenue increased by 4.0% YoY and 6.4% QoQ to Rmb10.76bn; gross profit rose 10.8% YoY and 11.7% QoQ to Rmb5.22bn; GM grew 3.0ppt YoY and 2.3ppt QoQ to 48.5%; and attributable net profit increased by 16.6% YoY and 14.5% QoQ to Rmb3.39bn.

Trends to watch

Company’s passenger transport volume remained stable; railway network service turnover increased steadily. In 1H24, passenger transport volume of Beijing-Shanghai high-speed railway slid 1.1% YoY; and turnover of railway network service increased by 7.9% YoY. In 2Q24, the YoY growth rates of the passenger turnover slowed due to a slower growth in total passenger volume in China: data from the National Bureau of Statistics (NBS) shows that the passenger turnover of railways in China increased by 24.2% YoY in 1Q24 (thanks to a low base in 1Q23) and rose 5.4% YoY in 2Q24 (down 3.1% QoQ). In addition, passenger turnover of railways declined by 3.2% YoY in July.

Jingfu Anhui almost reached the breakeven point in 1H24. The turnover volume by Jingfu Anhui increased by 10.5% YoY. In 1H24, revenue of Jingfu Anhui increased by 10.1% YoY to Rmb2.96bn; and Jingfu Anhui incurred a loss of Rmb148mn (down 74% YoY and down by Rmb421mn).

Cash flows strong; financial expenses declined substantially. In 1H24, the company's operating cash flow reached Rmb10.32bn, and it net repaid around Rmb10bn loans. In 1H24, financial expenses dropped by 27.5%, as interest-bearing liabilities declined.

Financials and valuation

We cut our attributable net profit forecasts 3.7% to Rmb13.77bn (+19.3% YoY) for 2024 and 6.3% to Rmb15.25bn (+10.8% YoY) for 2025, as the growth of passenger volume of railways in China has slowed since 2Q24. The stock is trading at 19.4x 2024e and 17.5x 2025e P/E. We maintain an OUTPERFORM rating and our target price of Rmb6.14/sh. Our TP implies　21.9x 2024e and 19.8x 2025e P/E, offering 13.1% upside.

Risks

Operation of trains on railways other than the Beijing-Shanghai high-speed railway disappoints; passenger traffic being diverted to new routes.