MORGAN STANLEY RESEARCH ASIA/PACIFIC Morgan Stanley Asia Limited+ Andy Meng, CFA
[email protected] +852 2239 7689 Edward H Xu, CFA
[email protected] +852 2239 1521 Tommy Wong January 14, 2010
[email protected] Ying Guo
[email protected] Industry View China Toll Roads Morgan Stanley Asia (Singapore) Chin Y. Lim, CFA In-Line Pte.+ +65 6834 6858 Driven by China’s Long-term Economic Growth: In-Line Rating & Price Target Company Ticker Rating Price Target Conclusion: We initiate coverage of China’s toll road Zhejiang Exp. 576.HK Overweight HKD 8.96 industry with an In-Line view. We believe the industry is Sichuan Exp. 107.HK Overweight HKD 4.96 well positioned to benefit from long-term economic Jiangsu Exp. 177.HK Equal-weight HKD 7.59 growth and rising car consumption in China. Aggressive toll road network expansion by the government might Anhui Exp. 995.HK Equal-weight HKD 5.87 lead to traffic migration away from existing toll roads, in Shenzhen Exp. 548.HK Equal-weight HKD 4.17 addition to declining IRR, but we actually expect limited HHI 737.HK Equal-weight HKD 5.26 impact on the listed companies. Of them, we view Source: Morgan Stanley Research Zhejiang Expressway as the largest beneficiary of a potential export recovery in 2010, while Sichuan Toll Road Traffic Continues to Recover Expressway will be a good proxy for a strong economy 1,200 25% in southwest China, in our view. 2008 2009 YoY Growth (RHS) 1,000 18% 20% Aggressive road expansion not a major concern: 17% 800 15% We hold this non-consensus view for three reasons.