China's toll-road stocks to benefit from traffic boom
Mainland toll-road stocks have been given a cautiously optimistic assessment in a USB Warburg report.
The report, released last week, analysed differences among three SAR-listed toll-road companies - Zhejiang Expressway, Jiangsu Expressway and Shenzhen Expressway.
'We believe toll-road companies will be the biggest beneficiaries of an expected boom in vehicle demand in China,' the report said.
Among the three, Zhejiang Expressway was chosen as the 'top pick' in the sector.
'Zhejiang Expressway benefited from the provincial consolidation of the toll collection network, in which the company was allowed to migrate toll roads into the provincial network without changing its toll rates.
'In other words, there should be limited risk for Zhejiang Expressway to cut tolls,' the report said.
The fee-cut risk was also slim for Jiangsu Expressway.
'[Jiangsu Expressway's] management believes the company only has upside potential in toll rates,' the report said.
Comparatively, Shenzhen Expressway might come under pressure to reduce its road fees.
'[The company] will likely have to cut its toll rate from next year by around 15 per cent given the local government's efforts to standardise toll fees with Guangdong province.'
The Shenzhen state-owned enterprise charges toll rates higher than the provincial average.
A BOC International research report last week estimated the Shenzhen company would probably obtain compensation of two billion yuan (about HK$1.87 billion) from the municipal government for its loss of revenue associated with toll station adjustments.
'According to management, the compensation is likely to be paid on an annual basis rather than in a lump sum,' the BOC report said.
As Shenzhen Expressway's share price came down by 33 per cent from its 12-month peak, the report expected a share price upside in the near future.
The share edged up one HK cent to close at HK$1.40 on Friday.
Zhejiang Expressway last Friday announced its shareholders had already approved the resolution to issue one billion yuan worth of domestic corporate bonds to institutional and public investors within the mainland.