汇丰银行-中国-交通运输业-中国基础设施建设：只是获得所有投资回报的门票-2019.6-63页 (2).pdf

Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.China InfrastructureJune 2019Equities/Road&RailPlay interview with Lesley LiuPlay China rail explainerBy:Lesley LiuJune 2019Road&RailEquitiesChina InfrastructureJust the ticket for a return on all thatinvestmentChinas huge high-speed rail network is changing how people travel,boosting passenger volumes and increasing return on assetsMany believe China has overbuilt its railway infrastructure.We disagree.The emphasis is on moving from scale to efficiencyChina transport operators provide an attractive dividend yield in a volatile market.Our Buy ideas are:Daqin Railway,Guangshen Railway,Zhejiang Expressway,and Shenzhen ExpresswaySP OTLIGHT 1 Equities Road&Rail June 2019 The key messages High-speed rail is changing the way people in China travel.The comfort,convenience,competitive pricing,and punctuality of the worlds largest high-speed rail(HSR)network is reflected in the growth in overall railway passenger volumes.Railway passenger volumes doubled over the past decade,mainly thanks to the popularity of HSR,and we believe they could almost double again to 5.5bn passenger journeys by 2022e.However,the number of annual rail trips per person remains far below many other countries,which suggests that this is only the start of a long-term growth story.But theres more to this than just plain numbers.Government policy will support investment in the rail network,shifting huge amounts of freight from road to rail,which in turn will free up expressways for more passenger vehicles and help meet the countrys clean air targets.More railway reforms will also help increase the pace of asset injections.All this will increase return on assets,which is good news for Chinas transport operators.In this report we:Look at the changes in how people travel and track the growth of the HSR network.In 2017 HSR accounted for more than half of rail passenger traffic for the first time.Explain why the risk of infrastructure overbuild is low,given the size of the country and the population.Highlight the integration of new regional rail lines with trunk routes and road and air networks.Analyse how increased passenger volumes are boosting the return on assets ROA on the Beijing-to-Shanghai HSR line rose from-1%in 2014 to+5.8%in 2017.Stress the importance of policy support.Reforms in the railway industry will increase the pace of asset injections and privatisations,and the Blue Sky policy to fight pollution will shift more freight traffic from road to rail,boosting passenger car traffic.Highlight our Buy ideas.Transport operators offer attractive dividends in a volatile market we like Daqin Railway,Guangshen Railway,Zhejiang Expressway,and Shenzhen Expressway.We make no changes to our estimates,ratings,and target prices in this report.Why read this report?Chinas huge high-speed rail network is changing how people travel,boosting passenger volumes and increasing return on assets Many believe China has overbuilt its railway infrastructure.We disagree.The emphasis is on moving from scale to efficiency China transport operators provide an attractive dividend yield in a volatile market.Our Buy ideas are:Daqin Railway,Guangshen Railway,Zhejiang Expressway,and Shenzhen Expressway Lesley Liu*Analyst,Infrastructure&Industrials Research The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4524 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations.THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE PRC)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Equities Road&Rail June 2019 2 Why read this report?1 Chinas railway infrastructure 3 Key HSBC stock calls 4 Related research 5 Let the train take the strain 6 The time value of money 14 A more efficient mix and match of transport modes 21 Getting rail on the right track 26 ESG matters in transport 34 Our top picks among rail and expressway operators 39 Disclosure appendix 57 Disclaimer 60 Contents 3 Equities Road&Rail June 2019 Source:Wind,UIC,HSBC estimates 60%29,100km45,000kmRMB1.3trn1.3bnpassengers,or 43%growth30%BUYGuangshen Railway(525 HK)BUYDaqin Railway(601006 CH)BUYZhejiang Expressway(576 HK)BUYShenzhen Expressway(548 HK)We have Buy ratings on four industry leadersChina has the longest high-speed rail(HSR)network in the worldTravel behaviour in China is changing,consistent with consumption upgrades0.00.51.01.52.02.520082018Annual travel frequency by rail hasdoubled in the past 10 yearsChinaSpainSouth KoreaGermanyFranceDenmarkSwitzerlandJapan21232519346473but is very low compared toother countries we believe changes in travel behav-iour and the rise of the middle class willsupport growth in rail passengervolumesOne additional passenger per year equalsof the worlds HSR network isin ChinaTotal length of HSR network currentlyin operation in ChinaUrbanisation likely to focus on theYangze River Delta and four otherareas with similar growth potentialthe target for the HSRnetwork in China by 2030Target increase of freight volume byChina Railway Corporation(2018-2020)1,620 km Germany2,814km France3,041km Japan2,852km SpainPotential HSR demand in thesefour regions could be 9,000km,with an investment of aroundYangzeRiver Delta2314Pearl River Delta(Guangdong province)Beijing-Tianjin-Hebei zone(Hebei province)Central China industrial cities group(Hubei and Hunan provinces)Chengdu-Chongqing cities group1234Chinas high-speed rail timetableChinas railway infrastructure Equities Road&Rail June 2019 4 Key HSBC stock calls Guangshen Railway 525 HK Current price:HKD2.72 Target price:HKD4.00 Up/downside:47.1%A major inter-city railway operator in Guangdong;its major assets are the GS intercity line and Guangzhou-Pingshi normal speed railway line Rail+property business on track;expect the local government to be more proactive Beneficiary of railway industry reform process and potential high-quality HSR asset injection(China Railway Corporation CRC)aims to improve profitability,although its dividend yield is c.2.9%Buy Daqin Railway 601006 CH Current price:RMB8.62 Target price:RMB10.50 Up/downside:21.8%Daqin line volume to be maintained at a high level,while other non-Daqin lines could benefit from the plan to increase railway freight Acquisition of Tanggang Railway eliminates the potential risk of revenue loss on the Daqin line from Qinhuangdao port volume moving to Caofeidian port Potential for more asset injections or opportunities from the privatisation of railway operating assets currently owned by CRC.The company is providing c.6.0%dividend yield,which we think is sustainable Buy Zhejiang Expressway 576 HK Current price:HKD7.96 Target price:HKD11.00 Up/downside:38.2%Value-accretive asset injection strengthens the companys portfolio in Zhejiang We believe the company has the ability to do more M&A deals as it has a large cash balance on hand,with net gearing of c.27%in 2019e We believe the companys stable toll revenue outlook supports its 6.3%dividend yield Buy Shenzhen Expressway 548 HK Current price:HKD9.34 Target price:HKD10.40 Up/downside:11.3%Growth drivers are new toll roads,property development,new environmental protection business,and other one-off gains We believe the company is looking for more M&A opportunities in toll roads and environmental protection The new business to drive earnings growth over the long term,supported by stable cash flow from toll roads;its 5.3%dividend yield is sustainable Buy Note:Priced at 19 June 2019 Source:Bloomberg,HSBC estimates 5 Equities Road&Rail June 2019 Related research Recommended reading.China infrastructure On the move again 9-Nov-2018 China Expressway Smart toll road system is coming 5-June-2019 Transport:the second frontier Finding opportunities from the HSBC Climate Solutions Database 15-Jan-2019 China Express Delivery Initiate coverage:Delivering the goods how e-commerce is creating industry giants 12-Feb-2019 Chinese Airlines Ready for take-off 17-Jan-2019 CCCC(1800 HK/601800 CH)Elephant in the room:Downgrade H to Hold;A stays at Reduce 12-Jun-2019 Recommended viewing.CCCC(1800 HK/601800 CH)Elephant in the room:Downgrade H to Hold;A stays at Reduce Anderson Chow,Global Co-head of Industrials Research,discusses what needed to happen to trigger the next phase of expansion for CCCC and why the stock has de-rated since 2015.12-Jun-2019 China Infrastructure On the move again Anderson Chow,Global Co-head of Industrials Research,discusses Chinas move to help shore up domestic demand by boosting investment in infrastructure,highlighting key stocks that stand to benefit from the policy.9-Nov-2018 Equities Road&Rail June 2019 6 Theres still a lot more travelling to be done in China You can now buy a high-speed rail ticket in China on your mobile phone and check in using facial recognition technology in a matter of seconds.This is fitting for a country with the longest high-speed rail(HSR)network in the world 29,100km in operation and plans for 45,000km to be in place by 2030e and also the highest volume of rail passengers.Yet the number of times a year that an average Chinese citizen travels by train is low compared with other major countries.Thats why we believe strong growth in the number of rail passengers in the coming years is inevitable as comfort and convenience become more important to increasingly affluent passengers.In this section we discuss how changes in travel habits can benefit Chinas rail companies,explain why we think policymakers are right to press on with expanding the countrys huge transport network,and how the move to shift huge amounts of freight from road to rail will in turn free up expressways for more passenger vehicles and help meet Chinas clean air targets.We think the expressway sector will be able to maintain an increase in traffic volumes that is above-GDP growth in 2019.At the same time,we expect double-digit volume growth for railway freight to continue through 2020.We think all these factors will combine to improve the return on assets for the rail companies.For example,ROA on the Beijing-to-Shanghai HSR line increased from-1%in 2014 to+5.8%in 2017.In addition,industry reform should also help through the increasing trend towards asset injections and potential privatisation in the rail sector.Policy changes are also affecting the expressway companies.The Expressway Management Ordinance,which could be finalised in 2019,should provide more transparency on the return of assets.The policy of increasing infrastructure investment to stabilise domestic demand is also likely to create a favourable policy framework for encouraging private sector involvement in overall infrastructure investment.Let the train take the strain The days of transport gridlock during Chinese New Year are long gone,largely thanks to the worlds longest high-speed rail network A lot more rail infrastructure is still being built,but the focus is on efficiency and integration with road and air routes,rather than scale We have Buy ratings on Daqin Railway,Guangshen Railway,Shenzhen Expressway and Zhejiang Expressway China has the largest high-speed rail network in the world 7 Equities Road&Rail June 2019 Changes in travel behaviour to benefit HSR and expressways Chinas transport infrastructure is changing travel peoples behaviour.Rising middle class consumption is driving demand for convenience,comfort,and punctuality.High-speed railway,as well as more efficient expressways,tick all these boxes and this,in turn,has implications for both passenger and freight transport.We think HSR passenger volumes will continue to enjoy double-digit growth in the coming years as HSR is now seen as a punctual,comfortable,and convenient way to travel between cities.The completion of more HSR lines during the 13th Five-year plan(2016-20)will provide better connections and feeder volumes to the national trunk routes,which were completed during the previous five-year(2011-15).Privatisation and asset injections should be another positive for the sector.Media reports suggest that Beijing-Shanghai HSR is planning to list on the A-share market in 2019 and Guangshen Railway(525 HK)has started negotiations with CRC about a potential HSR asset injection(source:Xinhua,27 February 2019).We believe this could be a catalyst for the performance of the listed railway sector.We have not included the asset injection in our Guangshen Railway model but it could be a major catalyst and new growth driver for the company in the coming years.Road travel is also changing.The greater use of the expressway and highway network is being driven by the rise in car ownership in China,government initiatives to increase the efficient use of roads,and the rapid increase in the door-to-door delivery of consumer products thanks to e-commerce.As a result,we are positive about the outlook for traffic growth in the countrys expressway sector.We expect listed Chinese expressway operators to see steady mid-single digit toll revenue growth in the coming years.With strong cash flows,the expressway sector provides a sustainable 5-6%dividend yield,offering good defensive qualities in a volatile market at a time of external uncertainty.Within the expressway sector,we like Shenzhen Expressway(548 HK)and Zhejiang Expressway(576 HK)due to the quality of their management,the positive outlook for toll roads,and growth potential from other businesses.The outlook for freight transport is also changing.We believe the national strategy to shift freight from truck to railway will change the freight transport landscape over the long term.Daqin Railway(601006 CH)is the only railway freight operator listed in China.Although its main asset,the Daqin line,which generates c.50%of revenue,is facing capacity constraints,its other rail lines should benefit from the new freight policy and see double-digit volume growth over the next three years.The company maintains a 50%dividend pay-out ratio,providing a c.6.0%dividend yield.As railway industry reform deepens,potential M&A opportunities may also be a catalyst for the listed rail operators.Daqin Railway acquired three rail assets from CRC at the end of 2018.This was well received by the market and the acquisitions have already made a small contribution to earnings.Management indicated at the May 2019 annual general meeting that it will continue to look for more M&A opportunities.High-speed railway and more efficient expressways tick the right boxes Road travel is also changing The outlook for freight transport is also changing Equities Road&Rail June 2019 8 Has China built too much high-speed rail infrastructure?After 15 years of investment in railway infrastructure,China is now home to 60%of the worlds high-speed rail network a total of 29,100km in operation and another 45,000km planned to be in place by 2030e.Some investors think