3Q24 results miss our and market expectations

Beijing-Shanghai High Speed Railway (BJ-SH HSR) announced its 3Q24 results: Revenue fell 0.9% YoY and rose 6.8% QoQ to Rmb11.49bn, and attributable net profit fell 3.2% YoY and grew 7.8% QoQ to Rmb3.66bn, missing our and market expectations. We attribute the lower-than- expected results to a wider YoY decline in passenger turnover of Beijing- Shanghai high-speed railway and slower YoY growth in turnover of railway network service in 3Q24.

In 1-3Q24, revenue rose 4.8% YoY to Rmb32.36bn, and attributable net profit grew 12.4% YoY to Rmb10.02bn.

Trends to watch

Growth in national passenger transport volume slowed in 3Q24; decline in distance widened. According to the National Bureau of Statistics, railway passenger volume rose 6.8% YoY to about 1.24bn in 3Q24, the passenger turnover grew 1.0% YoY to 477.62bn km, and average operating distance fell 5.5% YoY to 384 train-kilometer. Growth in both passenger volume and turnover slowed compared with the previous two quarters (for example, YoY growth in passenger volume was 28.5% and 10.2% in 1Q24 and 2Q24), and the decline in distance widened (the decline was 3.4% in 1Q24 and 4.4% in 2Q24). In our view, the passenger volume and turnover performance of Beijing-Shanghai high-speed railway may be in line with the overall market trend, and may also be the main reason behind the firm’s lower-than-expected 3Q24 results.

Jingfu Anhui turned profitable in 3Q24, beating market expectations. Given the firm's minority interests, we estimate that earnings of Jingfu Anhui reached about Rmb28mn in 3Q24, with YoY and QoQ growth turning positive (vs. a loss of about Rmb79mn in 3Q23 and loss of Rmb66mn in 2Q24). The performance of Jingfu Anhui beat market expectations.

Cash flow remained strong. In 3Q24, operating cash flow was Rmb5.42bn, and net repayment of interest-bearing liabilities was Rmb3.48bn (the firm booked operating cash flow of Rmb10.32bn and net debt repayment of about Rmb10bn in 1H24). Net debt at end-3Q24 was about Rmb45.7bn, down 10% from the end-2Q24 level. Financial　expenses fell 22.9% YoY in 3Q24 thanks to falling interest-bearing liabilities.

Financials and valuation

Given lower-than-expected turnover in 3Q24, we cut our 2024 and 2025 attributable net profit forecasts 7.4% and 6.5% to Rmb12.76bn and Rmb14.26bn, implying YoY growth of 10.5% and 11.8%. The stock is trading at 21.8x 2024e and 19.5x 2025e P/E. Given the firm's ample cash flow and solid dividends, we maintain an OUTPERFORM rating and our TP of Rmb6.14, implying 23.6x 2024e and 21.1x 2025e P/E, offering 8.5% upside.

Risks

Disappointing growth of passenger traffic volume; changes in cost settlement mechanism.