Shandong and the Yangtze River Delta contribute to three of China's most profitable expressway companies, with annual revenues of 10 billion yuan, but it is not easy for the industry to break even
Text | Deng Xia
Edit | Wang Jingyi
How many years can a toll highway be charged?
On April 8, the National Development and Reform Commission and other departments issued the "Measures for the Administration of Infrastructure and Public Utilities Concessions", proposing that the concession period should not exceed 40 years in principle, which is 10 years longer than the old version of the policy in 2015.
Travel Yike (ID: carcaijing) combed through the financial reports of 22 listed highway companies and found that the toll fees of expressways are very considerable, and the annual revenue of the best-performing expressway companies can reach 10 billion yuan.
The people of Shandong and the Yangtze River Delta contributed to the three listed companies with the highest revenue. According to the financial report, the most profitable expressway company is Shandong Expressway (600350. SH), with an operating income of 26.55 billion yuan in 2023. The second is from the Yangtze River Delta Zhejiang Huhangyong (00576. HK) and Nanjing-Shanghai Expressway (600377.SH), with operating income of 16.97 billion yuan and 15.19 billion yuan respectively.
Revenue is not equal to profit, and China Merchants Highway (001965. SZ) has sprung up, ranking first with a net profit attributable to the parent company of 6.77 billion yuan in 2023. As of the end of 2023, China Merchants Highway has invested in 26 high-quality toll road companies, with an investment income of 5.99 billion yuan, driving a significant increase in performance.
It can be seen from the way China Merchants Highway makes money that the highway itself is not a very profitable business. It is not easy for these companies to "recoup their capital" from the highway.
01
Tolls are not entirely tied to the local economy
There is no uniform price for highway tolls. Generally speaking, each province and city will price different models separately according to the "Classification of Toll Road Vehicle Toll Models" (JT/T489-2019).
Travel One Passenger (ID: carcaijing) has sorted out the corresponding toll standard policies for a class of passenger cars (models and specifications less than or equal to 9 seats, that is, commonly used household models) on highways in various provinces. It is worth mentioning that there is also a price difference in the toll of the provincial expressway, coupled with the preferential policy for ETC vehicles, the fees in the table are for reference only, and the toll standards of the specific high-speed sections are subject to public government documents.
For example, a six-lane highway is more expensive than a four-lane highway. The toll rate for passenger cars on four-lane expressways in Guangdong Province is 0.45 yuan/vehicle-kilometer, and for six-lane highways, it is 0.6 yuan/vehicle-kilometer. Hunan Province has also seen such a rule, the cost of less than 60 million yuan/km of four-lane toll is 0.4 yuan/km, otherwise it is 0.5 yuan/km.
Some provinces will charge for additional construction costs such as tunnels/bridges separately. For example, in Zhejiang Province, in addition to paying the number of trains and kilometer rates, there are additional fees for road sections involving tunnels/bridges. The greater the number of tunnels (bridges) involved in the road section, the higher the toll that the vehicle owner will have to pay.
Where are highway tolls more expensive? Travel Yike (ID: carcaijing) sorted out and found that Hubei Province can be counted as one. Its highway tolls are mainly concentrated in 0.64-0.76 yuan/vehicle kilometer, which is not much lower than that of Guangdong Province. However, Hubei Province's GDP in 2023 is 5.58 trillion yuan, less than half of Guangdong's GDP in 2023.
Shanxi province has the cheapest expressways, with an average of less than 0.4 yuan per kilometer, comparable to Inner Mongolia.
It can be seen that the toll standard of the expressway is not completely equivalent to the local economic level, and the toll mode is not the same. This is mainly due to the fact that there are so many factors to consider when it comes to highway tolls.
The national "Regulations on the Administration of Toll Roads" stipulates that "the standard of vehicle tolls shall be calculated and determined according to the technical grade of the highway, the total amount of investment, the local price index, the period of repayment of loans or paid fund-raising, the period of recovering investment, and the volume of traffic".
In 2014, Wuhan Tianhe Airport Expressway became the most expensive expressway in Hubei at that time due to the "toll of more than nine cents per kilometer", which aroused heated discussions among netizens. At that time, the person in charge of the company responsible for the construction and operation of the road pointed out that there were many reasons for the high fees, including the increase in construction costs, the cost of the elevated section is more expensive than that of the dirt road, and the compensation for land acquisition and demolition in the local area is more.
Shandong Jitai Expressway, which was opened to traffic in 2020, was also questioned because of excessive tolls, and then the Shandong Provincial Department of Transportation carried out a briefing, explaining that the main reason was that the cost of Jinan-Tai'an Expressway was higher, including 4 extra-large bridges and tunnels, with a total investment of 11.294 billion yuan and a cost of 202 million yuan per kilometer, which was more than twice the average cost of expressways in the province.
02
Mainly earn tolls, and a small part rely on "side jobs"
Travel Yike (ID: carcaijing) combed and found that among the 22 listed companies, the highest operating income is Shandong High-speed (600350. SH), with an operating income of 26.55 billion yuan in 2023, followed by Zhejiang Shanghai-Hangzhou-Ningbo (00576.HK) with 16.97 billion yuan in 2023, and Nanjing-Shanghai Expressway (600377.SH) with an operating income of 15.19 billion yuan in 2023.
Shandong High-speed Co., Ltd. operates and manages a total of 2,864 kilometers of road and bridge assets, of which 1,555 kilometers are owned by the company and 1,309 kilometers are entrusted with the management of road and bridge assets owned by Shandong High-speed Group.
In 2023, with the significant increase in travel demand, the passenger traffic of the expressway under the jurisdiction of Shandong Expressway will recover rapidly. According to the financial report, in 2023, the revenue of the expressway business operated by Shandong Expressway (including expressway toll income and expressway trusteeship income) will reach 10.88 billion yuan.
The main contribution comes from the related sections of the Jinan-Qingdao Expressway and the Beijing-Taiwan Expressway. The traffic volume of the two road sections in 2023 will be 78.08 million vehicles, and the toll revenue will be 3.603 billion yuan and 2.165 billion yuan respectively, accounting for more than 50% of the total toll revenue of Shandong Expressway.
The Yangtze River Delta has also made a great contribution to the listed companies of expressways, and the second and third largest companies in terms of revenue are all located here.
Zhejiang Shanghai-Hangzhou-Ningbo Expressway Co., Ltd. has invested in and operated a total of 24 expressways with a total mileage of 2,193 kilometers, mainly including Shanghai-Hangzhou, Hangzhou-Ningbo and other expressway sections.
In 2023, with the significant increase in travel demand, the passenger traffic of the expressway under the jurisdiction of Shanghai-Hangzhou-Ningbo in Zhejiang Province will recover rapidly, and the toll revenue will also reach a new peak. According to the financial report, in 2023, the revenue of the expressway business operated by Shanghai-Hangzhou-Ningbo will reach 10.42 billion yuan, accounting for 61.4% of the total revenue.
In terms of net profit attributable to the parent company, China Merchants Highway (001965. SZ) has sprung up, ranking first with a net profit attributable to the parent company of 6.77 billion yuan. Zhejiang-Shanghai-Hangzhou-Ningbo recorded a net profit attributable to the parent company of 5.22 billion yuan in 2023, ranking second, followed by Nanjing-Shanghai Expressway with a net profit attributable to the parent company of 4.41 billion yuan.
This is inseparable from the high-quality road properties held by China Merchants Highway. China Merchants Highway is a comprehensive highway investment and operation service provider with the longest investment and operation mileage, the widest coverage area and the most complete industrial chain in China, and its controlling shareholder and actual controller is China Merchants Group. By the end of 2023, the company held 24 highway projects with a total mileage of 14,745 km.
In addition, the high profit of China Merchants Highway in 2023 also comes from good investment. By the end of 2023, China Merchants Highway has invested in a total of 26 high-quality toll road companies, of which 16 are A- and H-share highway listed companies, with investment income reaching 5.99 billion yuan, an increase of 2.53 billion yuan year-on-year, driving a significant increase in performance.
But there are also some road companies that choose to focus on other side hustles. For example, Huayu Expressway (01823. HK）。 It has fewer expressway assets and has been transforming since 2022 to lay out the liquor business across banks.
According to the financial report, in 2022, Huayu Expressway plans to sell its 60% stake in Suiyue Expressway for about HK $610 million. Until April this year, Huayu Expressway has completed the construction, operation and management of Suiyue Expressway and Suiyue Expressway. According to official disclosures, Huayu Expressway's current main business is liquor trade. At present, the expressway built, operated and managed by the company is only the first phase of Qingping Expressway.
Hunan Investment (000548. In addition to the construction and operation of expressways, SZ has also invested in asset management and property services, hotel investment and operation, and urban complex investment and development. Among them, the highest gross profit margin is still highway construction and operation, which is 65%. The second is hotel investment and operation, with a gross profit of 35%.
Gross profit margin of Hunan Investment's main business
Source: The company's financial report
03
Highway tolls are high and costly
Judging from the annual reports disclosed by these listed companies, the revenue of the expressway looks very impressive, and the gross profit is also very high. But the shortcomings and risks hidden behind the industry cannot be ignored either.
The Shandong Provincial Department of Transportation has replied to the public, saying that the expressway company does have the characteristics of "gross profit from sales" and "net profit from sales" put forward by many media, but due to its large investment scale, high total assets, long operation period, and extremely low turnover rate of total assets, the "return on net assets" that truly reflects the profitability of the enterprise is not high.
For example, China Merchants Highway, which ranks first in net profit, has a return on equity of only 11.41%. Hunan Investment, which ranks last in terms of net profit, has a weighted average return on equity of only 7.7% in 2023.
In other words, behind the high revenues and profits of "lying down and earning" after the construction of the road, it is the highway company that has invested in costs that will take or even decades to recover at the beginning.
According to the data disclosed by the Ministry of Transport, at the end of 2021, the total investment in the construction of toll roads nationwide was 12,118.44 billion yuan, but the total revenue of toll roads in 2021 was only 663.05 billion yuan. This means that if you do not take into account inflation, debt interest, etc., it will take about 20 years to iron out the cost of toll road construction with the toll revenue in 2021.
"It is true that some expressways that were built earlier, with lower costs and better locations, are profitable and have higher profit margins, but the expressways are 'unequal between the rich and the poor', and they are definitely loss-making as a whole." Zhang Zhuting, a professor at the Management Cadre College of the Ministry of Communications, once told the media.
Where do the losses come from? Yu Mingyuan, Highway Research Institute of the Ministry of Communications, believes that on the surface, the accumulation of highway debt is mainly due to the large number of loans and the large gap between income and expenditure, but there are three essential reasons:
First, transportation infrastructure is a quasi-public good with certain public welfare attributes, but the government's financial investment is seriously insufficient, and it relies excessively on loans from financial institutions, resulting in about 82% of the annual expenditure on debt and interest repayment. If the financial investment can keep up, there is no need to borrow so much.
Second, the interest rate on loans in the expressway industry is too high, from more than 5 percent in previous years to more than 4 percent now, and although it has declined, it is still relatively high. In fact, it can be seen from the annual statistical bulletin that the income of expressways continues to grow, the cash flow is very stable, and the loan risk is very small. Judging from the situation abroad, the interest rate of infrastructure loans is relatively low.
Third, prices and costs are inverted. Highways are not now priced according to cost, and from 2004 to now, the toll rate has risen by less than 10 percent, but the cost of construction has increased several times, and the pricing mechanism has failed.
In addition, the toll road industry has reduced a large number of vehicle tolls every year, accounting for about 15% of the total receivables, and has also increased the scale of debt to a certain extent.
This also answers the question at the beginning of the article: why does the state introduce a policy of extending the concession period to attract more capital to participate in the construction of expressways? Because it's really too expensive to build a highway.