CICC released a research report stating that the earnings forecasts for SHENZHEN INT'L (00152) for 2024 and 2025 remain unchanged (the shareholding ratio may be diluted after the completion of the Shenzhen Expressway Corporation's capital increase). The 2026 earnings forecast is introduced for the first time at 3.61 billion yuan. The valuation is switched to 2025, and considering the company's stable dividend policy, the Target Price is raised by 23.3% to HKD 9.38, maintaining an "outperform the Industry" rating.

According to the company's announcement, on December 30, 2024, the City Planning and Land Resources Bureau of Longhua published that the land preparation benefit coordination project Phase I of the South China Logistics Park (i.e., plot No. 02-20-04) has been approved by the People's Government of Longhua District, Shenzhen City, and will carry out related land supply work. The release of this notice marks that the company has the development rights for the above-mentioned plot, and subsequent development will commence after the formal land transfer procedures are fulfilled.

CICC's main points are as follows:

The transformation of the South China Logistics Park has begun, and the first phase project has been launched.

According to the company's announcement, the reserved area for the South China Logistics Park project is approximately 0.109 million square meters, with a gross floor area of about 0.694 million square meters. The approved land area for Phase I is about 0.022 million square meters, with a planned floor area ratio of 5.8. Based on the estimates, assuming the land price is 0.0239 million yuan/square meter (calculated based on the starting price of plot A808-0025 near the South China Logistics Park in Longhua, Shenzhen), the transformation of the Phase I project will bring the company an after-tax land appreciation revenue of approximately HKD 2.19 billion. Looking ahead, it is estimated that the overall South China Logistics Park project will bring the company 13.2-15.5 billion yuan in land appreciation and Residence development revenue over the next 6-8 years.

In the first half of the year, the REITs successfully exited, and the toll road business showed signs of recovery in Q3 2024.

In the first half of 2024, the company achieved revenue of 6.61 billion HKD, a year-on-year decrease of 4.5%, and a net income attributable to shareholders of 0.65 billion HKD, a year-on-year increase of 609.1%. The significant growth in performance for the first half of the year was mainly due to the REITs being removed from the balance sheet, achieving a post-tax income of 0.587 billion HKD, and a reduction in exchange losses. Looking at the second half of the year, the company believes that the performance of toll roads and Eco-friendly Concept business has improved. In the third quarter of 2024, Shenzhen Expressway Corporation achieved revenue of 2.1 billion yuan, a year-on-year decrease of 6.4%, with a net income of 0.6 billion yuan, a year-on-year decrease of 1.6%. The decline in revenue and profit has narrowed compared to the first half of the year. According to Shenzhen Expressway Corporation's monthly announcements, from October to November, the company’s toll revenue from its joint ventures decreased by 2.9% year-on-year; the company believes its profit fundamentals are gradually stabilizing.

The dividend policy is stable, and the dividend yield is attractive.

The company's dividend policy is robust. From 2013 to 2023, the company has distributed a total dividend of 15.65 billion HKD, with an average dividend payout ratio of 51.0% over the past five years. Based on the company's profit forecasts for 2024/2025, assuming a 50% dividend payout ratio, the current price corresponds to a dividend yield of 7.8% for 2024 and 10.3% for 2025, which is very attractive.

Risks

Economic growth is below expectations, risks of impairment in logistics parks, and property sales are underperforming.