Southwest Securities has released a research report expressing confidence in Yuexiu Transport (01052), which became the first red-chip highway stock listed in Hong Kong back in 1997. The firm is optimistic about the company's prospects of evolving into a leading domestic asset management player in the transportation infrastructure sector, initiating coverage with a "Buy" rating and setting a target price of HK$5.73. The key points from Southwest Securities' analysis are outlined below.
The company has consistently strengthened and expanded its core toll road operations through ongoing asset optimization. This is evidenced by 1) a 14.9% growth in total revenue to RMB 2.099 billion in the first half of 2025, partly due to the consolidation of Pinglin Expressway starting November 2024; 2) the approval by an extraordinary general meeting on December 31, 2025, of an agreement to transfer an 85% equity stake in the Qinbin Expressway project from Yuexiu Group; and 3) the maintenance of a stable and sustainable dividend policy since 2010, with annual dividends typically accounting for 50% to 60% of profits attributable to shareholders.
As the pioneering red-chip highway stock listed in Hong Kong, Yuexiu Transport stands as one of the four core businesses under the massive state-owned enterprise, Yuexiu Group. A rare entity among domestic listed highway companies without a traditional transportation investment background, it has, over years of development, accumulated a portfolio of 18 projects involving expressways, bridges, and ports through controlling stakes, shareholdings, and management contracts, spanning a total length of approximately 1,039.54 kilometers. In the first half of 2025, the company's total revenue grew by 14.9% to RMB 2.099 billion, while net profit attributable to shareholders increased by 14.9% year-on-year to RMB 361 million.
While the domestic highway industry has entered a mature phase, having already achieved over 70% of the mileage targets outlined in the National Comprehensive Three-dimensional Transport Network Plan, it faces challenges. Although overall industry revenue has been steadily recovering post-pandemic, rising construction costs for new roads may lead to a revenue-expenditure gap in the future. Insights from policies such as the "Toll Road Management Regulations (Revised Draft)" suggest that a new version of the regulations may be introduced soon, with a trend towards breaking the original toll collection periods. Considering policy directions and market demand, Southwest Securities anticipates that future toll road enterprises in China will actively engage in expansion and renovation projects, acquire high-quality mature road assets, and diversify their business operations beyond their core activities.
The company has established a distinctive asset layout, with its road assets benefiting from excellent geographical locations and demonstrating strong operational efficiency. Over the past five years, road assets incubated by Yuexiu Group on its behalf have approached RMB 25 billion in scale. A significant milestone was reached in 2021 when the company successfully established a REITs platform, marking the basic formation of its three-platform architecture comprising an "incubation platform, a listed company, and public REITs." Leveraging the positive interaction among these three platforms enables the company to utilize diverse financing instruments, raise funds through multiple channels, and refine a fully-financialized development model covering the entire chain of "investment, financing, construction, management, and exit," thereby reducing the listed company's asset-liability ratio and optimizing its asset structure.
For its profit forecast and rating, Southwest Securities employed a Price-to-Book (PB) ratio for relative valuation. By benchmarking against comparable companies' valuations and business layouts, the firm assigned Yuexiu Transport a target of 0.7x PB for 2026, corresponding to a target price of RMB 5.21. Converted at an assumed exchange rate of RMB 1.00 to HK$1.10 as of December 2025, this translates to a target price of HK$5.73.
The report concludes with risk warnings, highlighting potential challenges such as industry policy changes, competition from parallel roads, investment decision risks, natural disasters, uncertainties regarding consolidation, and risks of projects progressing slower than anticipated.
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