The Beijing-Shanghai High-Speed Railway connects the "Beijing-Tianjin-Hebei" and "Yangtze River Delta" two major economic zones. The economic development level along the line is relatively high, and transportation is busy, driving the growth of passenger traffic on this line and across lines. There is still room for an increase in passenger flow. Even if the price increase factor is not considered in the future, the company's current strong cash flow also provides the possibility for high dividend distribution in the future.
In the first half of 2024, the number of passengers transported by the Beijing-Shanghai High-Speed Railway's own-line trains decreased by 1.1% compared to the same period last year, and the operating mileage of cross-line trains increased by 7.9% year-on-year. The company's operating income increased by 8.21% year-on-year, and the net profit attributable to the mother company excluding non-recurring gains increased by 23.69% year-on-year.
In addition to the ticket price factor, the growth of cross-line trains on the Beijing-Shanghai High-Speed Railway is also an important reason for the increase in profits. As a trunk line of the railway network, the company's cross-line train operating mileage increased by 7.9% in the first half of the year compared to the same period last year. With the continuous expansion and improvement of the national railway network, the growth of cross-line trains in the future may be higher.
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The correlation between cost and passenger traffic is relatively small, and the cost is relatively fixed. In the first half of the year, the operating cost of the Beijing-Shanghai High-Speed Railway increased by 1.83% year-on-year, with no sales expenses generated, management expenses increased slightly, R&D expenses remained basically unchanged, and financial expenses decreased by 27.54% year-on-year. The abundant operating cash flow provides the possibility for the company's future high dividend distribution, and the dividend value will gradually emerge.
Rail passenger transport picks up
In the first half of 2024, the national railway sent a total of 2.096 billion passengers, and the passenger turnover volume completed 777.952 billion person-kilometers, increasing by 18.4% and 14.1% year-on-year, respectively. The national railway runs an average of 10,256 passenger trains per day, a year-on-year increase of 9.4%, both of which set a historical high for the same period. The China Railway Group achieved an operating income of 579.4 billion yuan, with a net profit of 1.7 billion yuan. The quality and efficiency of railway operations have steadily improved, and the benefits of the listed company's railway passenger business have also steadily increased.
The Datong-Qinhuangdao Railway completed 23.49 million passenger trips, a year-on-year increase of 22.54%; the Guangzhou-Shenzhen Railway turned a profit in 2023, achieving an operating income of 12.925 billion yuan in the first half of 2024, a year-on-year increase of 4.40%. Among them, passenger income was 5.465 billion yuan, a year-on-year increase of 2.72%, and the income from network settlement and other transportation services was 6.033 billion yuan, a year-on-year increase of 9.74%. The gross profit margin in the first half of the year was 10.65%, an increase of 2.53 percentage points compared to the same period last year, achieving a net profit attributable to the mother company excluding non-recurring gains of 901 million yuan, a year-on-year increase of 36.08%. The Guangzhou-Shenzhen Railway cooperates with the MTR Corporation Limited to operate cross-border express passenger train transportation services. In the first half of the year, the income from the Guangzhou-Shenzhen intercity train was 1.625 billion yuan, a year-on-year increase of 8.06%.
In the first half of 2024, the Beijing-Shanghai High-Speed Railway's own-line trains transported 24.709 million passengers, a year-on-year decrease of 1.1%; the operating mileage of cross-line trains completed 48.502 million train-kilometers, a year-on-year increase of 7.9%; the company achieved an operating income of 20.862 billion yuan, a year-on-year increase of 8.21%, and the net profit attributable to the mother company excluding non-recurring gains was 6.353 billion yuan, a year-on-year increase of 23.69%. Different from the aforementioned railway passenger companies, the Beijing-Shanghai High-Speed Railway achieved double growth in revenue and profits without an increase in passenger traffic. The company stated that the Beijing-Shanghai High-Speed Railway has formed a market-oriented ticket pricing mechanism, forming a seven-tier ticket price floating plan during the peak passenger flow period. The main reason for the one rise and one fall in the company's revenue and passenger flow is the ticket price factor.
In the first half of the year, the holding subsidiary of the Beijing-Shanghai High-Speed Railway, the Beijing-Fujian High-Speed Railway Passenger Dedicated Line Anhui Co., Ltd. (hereinafter referred to as "Beijing-Fujian Anhui"), achieved an operating income of 2.957 billion yuan and a net profit of -148 million yuan, reducing losses by 421 million yuan compared to the same period last year. The operating mileage of trains under the jurisdiction of this subsidiary completed 18.984 million train-kilometers, a year-on-year increase of 10.5%. Huachuang Securities believes that with the completion of the capital expenditure of Beijing-Fujian Anhui, it is expected that the cost will tend to be stable, and the fluctuation of the company's revenue from 2021 to 2023 basically corresponds to the change in net profit. With the increase in production capacity, it is expected that Beijing-Fujian Anhui will gradually turn a profit and contribute benefits.
Business model releases profit spaceThe Beijing-Shanghai High-Speed Railway, which is invested in, constructed, and operated by the joint venture railway company, serves as a major artery running through the eastern part of China's railway network and is also the core of the network connecting the north-south high-speed railways and the passenger dedicated lines to the central and western regions. Major cities such as Beijing, Tianjin, Jinan, Nanjing, and Shanghai, which the Beijing-Shanghai High-Speed Railway passes through, are all important transportation hubs. Historical data shows that the administrative regions along the Beijing-Shanghai High-Speed Railway account for approximately 6.5% of the country's total area, yet they are home to 27% of the national permanent population and generate 33% of the national GDP. The per capita disposable income in these areas is 38% higher than the national average. From 2020 to 2023, the total passenger volume along the line reached 27.774 million, 35.291 million, 17.226 million, and 53.252 million, respectively.
Joint venture railway companies generally operate using an entrusted transportation management model. Except for pandemic years, the gross profit margin of the Beijing-Shanghai High-Speed Railway exceeds 40%. More than half of the company's revenue comes from trans-line services, which charge fees based on the train's traffic volume and pay according to the working load of the high-speed train sets without bearing the cost of the train sets. The company's fixed assets mainly include lines, buildings, electrified power supply systems, transmission equipment, signaling equipment, etc., distributed along the more than one thousand kilometers of track and more than 20 stations along the line. The company entrusts the Beijing Bureau Group, Jinan Bureau Group, and Shanghai Bureau Group along the line to manage the transportation of the Beijing-Shanghai High-Speed Railway. Based on the patterns of passenger flow and changes in occupancy rates, they continuously optimize the train operation plans, which helps to reduce operating costs, improve transportation efficiency, and avoid redundant construction and resource waste. Under this model, the main operating cost items are relatively rigid, with depreciation expenses, energy expenses, and high-speed train usage fees accounting for about 20%, and entrusted transportation management fees accounting for about 25%.
Zhejiang Securities points out that the usage fees for high-speed train sets and energy expenses are driven by the frequency of train operations and the length of the route. If the operation diagram remains stable, the fluctuations in these two costs are not significant. Depreciation expenses are related to the scale of the company's fixed assets and the established consumption methods. If there are no significant changes in accounting estimates, the fluctuations are also not significant. The company's costs have a relatively low correlation with passenger volume, and the cost elasticity is relatively low.
In the first half of 2024, the operating costs of the Beijing-Shanghai High-Speed Railway increased from 10.779 billion yuan in the same period of the previous year to 10.977 billion yuan. There were no sales expenses, management expenses increased from 394 million yuan in the previous period to 397 million yuan, R&D expenses remained basically unchanged, and financial expenses decreased from 1.286 billion yuan to 931 million yuan. The cost structure, mainly consisting of fixed costs, creates room for the company's profit elasticity.
The Beijing-Shanghai High-Speed Railway began to make a profit after four years of operation. With the increase in operating income, the operating cash flow is relatively sufficient. The company repaid part of its long-term loans, the asset-liability ratio continued to decline, the scale of interest-bearing debt decreased year by year, which led to a decrease in financial expenses. The reduction in interest expenditure combined with the increase in operating gross profit led to an increase in the interest coverage ratio. In the first half of 2024, the cash flow interest coverage ratio reached 9.78 times.
Dividend value will gradually be reflected.
The number of train operations of high-speed transportation enterprises is constrained and restricted by existing railway lines. The Beijing-Shanghai High-Speed Railway is a part of the "eight vertical and eight horizontal" high-speed railway main channel and is connected with other high-speed railways such as Beijing-Harbin, Taiyuan-Qingdao, Xuzhou-Lanzhou, Shanghai-Wuhan-Chengdu, and Shanghai-Kunming. It can be extended to surrounding provinces and even the whole country through other main channels and intercity railway networks connected to it. There are many trans-line trains entering and exiting the Beijing-Shanghai High-Speed Railway through the hub, driving the growth of passenger volume on this line and trans-line. The company believes that as a main line of the network, with the continuous expansion and improvement of the national railway network, the growth of trans-line trains in the future may be higher.
Hua Chuang Securities points out that the dominant factor in the revenue of duty trains is the occupancy rate, and the decisive factor for trans-line trains is the operation volume. With the continuous construction of the high-speed railway network and the increase in operating mileage, new lines continue to be connected, which is reflected in the increasingly dense trans-line network of Beijing-Shanghai and Beijing-Fuzhou. In 2023, the trans-line business on the Beijing-Shanghai line obviously recovered, and the operating mileage of trans-line trains increased by 66% year-on-year.
Zhejiang Securities believes that the capacity expansion of the Beijing-Shanghai High-Speed Railway mainly relies on increasing the number of passengers by replacing train models, increasing speed, and shortening tracking intervals. The line can increase the supply of transportation capacity by iterating train models, using longer formations, and increasing the frequency of train departures. The highest passenger kilometer revenue of second-class seats on the Beijing-Shanghai High-Speed Railway is 0.50 yuan, which is significantly lower than the lines such as Guangzhou-Shenzhen High-Speed Railway and Guangzhou-Shenzhen Intercity Railway, and has a long-term price increase basis. In June 2024, the number of passengers in some 8-car Fuxing trains has increased to 619, an increase of about 7.5%, with an increase of 38 second-class seats; the number of passengers in 17-car trains has increased to 1347, an increase of about 5%, with an increase of 61 second-class seats.
Even if the ticket prices do not rise compared to the current prices, the Beijing-Shanghai High-Speed Railway's ability to create cash flow is very strong. From 2020 to 2024, the net cash flow from operating activities of the Beijing-Shanghai High-Speed Railway was 12.602 billion yuan, 15.468 billion yuan, 6.801 billion yuan, and 21.081 billion yuan, respectively. In terms of capital expenditure, the company paid 5.027 billion yuan, 3.453 billion yuan, 1.099 billion yuan, and 1.49 billion yuan in cash for the construction of fixed assets, intangible assets, and other long-term assets in the past four years. In fact, after deducting the annual capital expenditure, the Beijing-Shanghai High-Speed Railway created a large cash flow to repay interest, thereby saving financial expenses and increasing the company's profits.During the same period, the Beijing-Shanghai High-Speed Railway repaid its debt with cash payments of 11.277 billion yuan, 13.605 billion yuan, 8.377 billion yuan, and 26.019 billion yuan, respectively. This has led to a rapid decrease in the high-speed railway's interest-bearing debt, with short-term borrowings dropping from 10 billion yuan at the end of 2020 to 0 yuan, long-term borrowings decreasing from 77.453 billion yuan to 58.941 billion yuan, and non-current liabilities due within one year falling from 2.362 billion yuan to 0.7835 billion yuan. This has resulted in a reduction of the company's financial expenses from 2.945 billion yuan to 2.365 billion yuan. In the first half of 2024, the company continued to repay its debts, and financial expenses further decreased to 0.931 billion yuan. Once the debt is significantly reduced, the value of its high dividend payout will be reflected.
According to the shareholder return plan for the next three years announced by the Beijing-Shanghai High-Speed Railway in April 2024, "except under special circumstances, when the company does not have any significant investment plans or significant cash expenditures, the total cash dividends distributed annually should be 50% of the distributable profits realized by the parent company in that year." Since its listing, the company has cumulatively paid cash dividends of 7.179 billion yuan, of which, in 2023, the company distributed a cash dividend of 0.56 billion yuan to all shareholders.