Guangdong Expressway A (000429): Depreciation change contributes 8PPT profit growth rate to return to 2020 high growth certainty

Guangdong Expressway A (000429): Depreciation change contributes 8PPT profit growth rate to return to 2020 high growth certainty
Company status The company announced that it will change its accounting estimates from January 1, 2020, and use the re-evaluated traffic volume of Fokai Expressway and Guangzhu East 杭州夜生活网 Expressway in 2019 as the basis for the depreciation after the change.The original traffic forecast based on depreciation was completed in 2013. Due to the reconstruction and expansion of the southern section of Fokai and changes in the road network around Guangzhu East, it is no longer applicable to the current situation. The company predicted in the announcement that this change in depreciation accounting estimates will reduce depreciation costs from 2020 and will contribute net profit after tax1 in 2020.06 ppm, according to our profit assumptions, this change will contribute to the company’s annual performance growth of 8ppt.In addition, because the change is handled using a future applicable method, it will not affect the previous year’s finances. Commentary on the traffic volume is estimated to often increase profits 无锡夜网 from time to time.The company adopts the traffic flow method for depreciation, that is, the balance of fixed assets is allocated every year according to the predicted traffic flow of the current year to the predicted proportion of the total traffic flow during the operating period.The company’s traffic flow forecast is often conservative, so the depreciation ratio in the early part of the operating period is higher than the actual traffic flow.Therefore, updating the forecasted future traffic flow during the operating period and making depreciation adjustments in accordance with the applicable future method will effectively reduce the depreciation cost of the remaining operating costs.Looking back, due to conservative depreciation estimates, the company-owned Guangfo Expressway completed depreciation about 5 years in advance and released 20171.100 million net profit after tax. If the new version of the depreciation policy is still conservative, it is still expected to complete depreciation and release profits in advance. The completion of the reconstruction and expansion of the southern section of the Fokai Expressway has achieved outstanding results and increased the company’s profit in 2020.2019: The reconstruction and expansion of the southern section of the Fokai Expressway was completed and opened to traffic on November 7, 2019. Higher toll rates will apply from the opening date, and traffic growth will increase.However, due to the depreciation of supplementary new fixed assets, we expect that the impact of reconstruction and expansion on current year’s earnings will be neutral.2020: We expect to postpone approval and the post-opening incentive effect and its total contribution2.3?2.The net profit of USD 400 billion (approximately 15% of the estimated net profit for the current year), the key assumptions include: ① Completion of the extension approval at the end of 2Q, which will be extended 10 years from the original termination date of 2026.In 15 years, ② the gradual traffic flow will increase by 12% in 2020 after the opening of traffic, and the bicycle charging rate will increase by 15% every year. It is estimated that due to the ban on heavy trucks banned by Humen Bridge, the tolls of Guangzhou-Zhuhai East continue to fall short of expectations. We lower our 2019 profit forecast by 5% to 13.20 ppm (not deducting -8% YoY); comprehensively considering the positive effects of this depreciation policy adjustment and the substitution effect of Humen Bridge on Guangzhu East, basically maintaining the 2020 forecast16.7.2 billion (+ 27% YoY); date 2021 forecast 18.8.6 billion yuan (+ 13% year-on-year).The current contradiction corresponds to 13/10 times 2019/20 P / E, 5.4% / 6.8% dividend yield in 2019/20.The company’s performance in 2020 is highly flexible and its dividends are considerable. We repeat the A-share outperform industry rating, which corresponds to 12 times the 2020 PER and 14% upside. Risks Humen Bridge Cargo Limit Exceeds Expectations, Fokai Reconstruction Extension Expansion Review Is Slower Than Expected