Stock Analysis & Valuation Zhejiang Expressway Co., Ltd. (ZHEH.L)

• Previous Close: £58.04
• Sector Valuation Confidence Level: Low

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	n/a	n/a
Intrinsic value (DCF)		n/a
Graham-Dodd Method	0.80	-99
Graham Formula		n/a

Strategic Investment Analysis

Company Overview

Zhejiang Expressway Co., Ltd. (LSE: ZHEH.L) is a leading toll-road operator in China, specializing in the construction, operation, and maintenance of expressways. The company plays a critical role in China's transportation infrastructure, facilitating economic growth and regional connectivity. With a market capitalization of approximately £2.49 billion, Zhejiang Expressway generates substantial revenue from toll collections, supported by China's expanding highway network and increasing vehicle ownership. The company's financial stability is underscored by strong operating cash flows and a solid dividend yield, making it an attractive option for income-focused investors. As China continues to invest in infrastructure to support urbanization and economic development, Zhejiang Expressway is well-positioned to benefit from long-term growth in transportation demand.

Investment Summary

Zhejiang Expressway presents a compelling investment case due to its stable revenue streams from toll operations, strong cash flow generation, and consistent dividend payouts. The company's net income of ¥5.38 billion and operating cash flow of ¥7.64 billion in FY 2022 highlight its financial robustness. However, investors should be mindful of the high total debt of ¥50.14 billion, which could pose risks in a rising interest rate environment. Additionally, the company's beta of 0 suggests low correlation with broader market movements, offering defensive characteristics. Given China's ongoing infrastructure investments, Zhejiang Expressway is poised for steady growth, but regulatory changes and economic slowdowns could impact toll revenue.

Competitive Analysis

Zhejiang Expressway operates in a highly regulated industry with significant barriers to entry, giving it a competitive advantage in its regional market. The company benefits from long-term concessions and government support, ensuring stable cash flows. Its extensive network in Zhejiang Province, one of China's most economically vibrant regions, provides a strategic edge over competitors. However, the toll-road sector is capital-intensive, and Zhejiang Expressway's high debt levels could limit financial flexibility compared to peers with stronger balance sheets. The company's competitive positioning is further reinforced by its operational efficiency and ability to maintain high traffic volumes. Nevertheless, competition from alternative transportation modes, such as high-speed rail, and potential regulatory shifts pose challenges to long-term growth.

Major Competitors

• Shandong Hi-Speed Co., Ltd. (600350.SS): Shandong Hi-Speed is a major competitor operating in China's eastern region, with a strong presence in Shandong Province. The company benefits from a diversified portfolio of toll roads and infrastructure assets. However, its geographic concentration may limit growth compared to Zhejiang Expressway's more economically dynamic region. Shandong Hi-Speed's financials are robust, but its dividend yield is less attractive.
• Sichuan Expressway Co., Ltd. (601107.SS): Sichuan Expressway focuses on toll-road operations in Sichuan Province, a less economically developed region compared to Zhejiang. The company faces lower traffic growth but benefits from government support for western China's development. Its smaller scale and higher reliance on state subsidies make it less competitive than Zhejiang Expressway in terms of profitability and cash flow stability.
• China Southern Airlines Company Limited (1055.HK): While not a direct competitor, China Southern Airlines represents an alternative transportation mode. The airline benefits from China's growing middle class and domestic travel demand. However, it faces higher operational volatility due to fuel price fluctuations and regulatory risks, unlike the stable toll-based revenue of Zhejiang Expressway.