As residents' travel returns to normal, both international and domestic passenger and cargo flows continue to grow, leading to a recovery in the transportation industry's prosperity.

The transportation infrastructure sector operates well, with the port industry showing steady growth and the highway and airport industries seeing a recovery in their operating performance.

Against this backdrop, the main transportation infrastructure companies, such as ports, highways, and airports, maintain a positive trend in their operations and financial conditions, although there is a divergence in the recovery situation among and within industries.

The growth in transportation infrastructure investment has been a strong support for the most significant increase in civil aviation and railway passenger volume since 2023.

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The downstream transportation industry has shown a strong recovery trend, providing a favorable external environment for the recovery and growth of transportation infrastructure companies.

In 2023, China completed a freight volume of 547.5 billion tons, a year-on-year increase of 8.1%, and a 16.9% increase compared to 2019; the cross-regional passenger flow volume reached 612.5 billion person-times, a year-on-year increase of 30.9%, and a 0.8% increase compared to 2019.

In the first half of 2024, the transportation volume continued to grow, with business passenger and freight volumes increasing by 13.2% and 4.2% year-on-year, respectively, and the cross-regional passenger flow volume increasing by 7.4% year-on-year.

Looking at the sub-industries, the growth in civil aviation and railway passenger volume is the most significant.

In the first half of 2024, driven by the recovery of international route passenger volume, the growth rate of civil aviation passenger volume reached 23.5%.

The overall growth rate of freight volume is slower than that of passenger volume.

Except for railway transportation, the freight volume of other transportation methods has achieved steady growth.

Among them, the growth rate of water transport and civil aviation cargo and mail transportation was relatively fast in 2023 and the first half of 2024.

We expect that China's transportation situation will still face challenges such as the increase of uncertain factors in the external environment.

However, the qualitative and quantitative improvement of domestic and foreign trade and residents' travel demand will provide support for the development of the transportation infrastructure industry.

At the same time, the country has introduced a series of policies and measures to promote the construction of infrastructure in the transportation field.

It is expected that under the background of a significant decline in government fund revenue and weak real estate investment, infrastructure investment will continue to be a support for the economy, and transportation infrastructure investment will continue to be strongly supported.

At the same time, fiscal policy will remain relatively active, and the issuance and use of long-term special treasury bonds, special bonds, etc., will provide financial guarantees, which will provide a continuous growth momentum for industry investment.

Ports have maintained a relatively fast growth rate since 2023.

Despite the external factors such as lower-than-expected global trade growth and geopolitical conflicts, China's major ports have maintained a relatively fast growth rate in cargo throughput.

In 2023, the national port cargo throughput and container throughput increased by 8.2% and 4.9% year-on-year, respectively; in the first half of 2024, the year-on-year growth rates of the two were 4.6% and 8.5%, respectively.

The main reasons for the port operation's ability to digest external shocks and achieve good performance are: first, under the support of domestic demand, the demand for domestic cargo transportation has remained stable; second, driven by factors such as price decline, policy liberalization, inventory growth, and export rebound, the transportation of bulk commodity imports has been relatively strong, and in 2023, the import scale of coal, iron ore, and crude oil all achieved rapid growth.

In addition, in recent years, China's ports have seen growth in routes to ASEAN, the Middle East, Africa, Russia, etc., and emerging routes have provided new growth power.

In 2023, the operating performance of most sample port companies increased, the growth of port throughput has driven the improvement of berth utilization rate and operational efficiency, and coupled with the basic repair in 2023, the operational efficiency of port companies' transportation, logistics, trade, and other related businesses has also been improved overall, and the gross profit margin of port companies has improved, and the operational efficiency and profitability have improved.

Therefore, although port companies maintained a larger capital expenditure in 2023, and the scale of interest-bearing debt grew rapidly year-on-year, leading to an increase in leverage, most sample port companies can still maintain a considerable operating cash flow to ensure the repayment of debt and interest.

We expect that the port industry will still maintain a certain demand for wharf construction and upgrading, and the scale and leverage of port company debt will continue to rise; but under the support of domestic demand for domestic transportation and raw material imports, the industry is expected to continue to grow steadily, and companies will maintain good operational cash flow and debt repayment ability.

Highway companies continue to benefit from the support of local governments.

Benefiting from the steady growth of operating performance and the reduction of capital expenditure pressure, the financial condition of highway companies improved in 2023.

Whether this trend can continue depends on factors such as the company's capital expenditure plan and road operation income, which is uncertain.

At the end of 2023, China's highway mileage reached 183,600 kilometers, and the newly added highway mileage was 6,300 kilometers.

With the basic formation of the highway infrastructure network, after experiencing rapid growth from 2017 to 2022, the investment in highways began to slow down in 2023, and the growth rate turned from positive to negative.

At present, China has completed 95% of the highway construction task, and there are only 7,000 kilometers left to reach the 2035 target.

In the future, the pace of national highway construction may slow down, mainly focusing on new investment in central and western regions with lower coverage rates and existing reconstruction investment.

In 2023, due to the growth of traffic volume and the end of preferential policies for charging, the operating performance and profitability of highway companies were repaired compared to 2022.

Coupled with the reduction of capital expenditure pressure and the decline of financing costs, the financial condition of companies improved in 2023.

However, whether this trend can continue in the future is mainly affected by the following two factors: first, the construction expenditure plans of various regions are quite different.

For example, highway investment and operation entities in Zhejiang, Hubei, Yunnan, Guangxi, Sichuan, and other places still have plans for large-scale new road construction and reconstruction investment, facing significant capital expenditure pressure, which may continue to push up the financial leverage and debt repayment pressure of companies.

Second, on the revenue side, as the toll roads built in the early stage are facing the expiration of the toll period one after another, attention should be paid to how companies solve the stability and continuity of road product income.

Despite this, we believe that highway companies will continue to benefit from the strong support of local governments, and the credit quality will remain stable.

The recovery momentum of the civil aviation industry is strong.

The civil aviation passenger volume has achieved a recovery growth, and the domestic route passenger volume has returned to the 2019 level, but the repair of the international aviation passenger market is obviously lagging behind the domestic market.

Airport companies, due to the significant repair of operating indicators, had better profitability in 2023 than in the previous year.

However, the decline in performance in the previous period led to weakened financial resilience, and the improvement of operating cash flow in the short term is difficult to offset the pressure of debt accumulation.

In 2023, the domestic route passenger transportation volume was 591 million person-times, which has already exceeded 2019; although the international route passenger volume maintained a high growth rate in 2023 and the first half of 2024, in terms of scale, the international route passenger transportation volume in 2023 only recovered to 39% of 2019, and in the first half of 2024, the proportion increased to 82%, and there is still a certain recovery space.

Some airports' main production data such as passenger throughput and takeoff and landing flights in 2023 have recovered to close to the 2019 level, but there are also some important airports such as the Capital Airport, Pudong Airport, Baiyun Airport, etc., due to the high proportion of international routes and international passenger volume, the recovery is weaker than the average level.

With the continuous recovery of the civil aviation industry, the operating performance of airport companies in 2023 showed a significant improvement trend, and the profitability was significantly repaired compared to the previous year.

However, affected by factors such as the recovery of international line passenger flow and the level of passenger consumption, the profitability of airport companies is still a large gap from the 2019 level, especially for airport companies with a large proportion of international route business and duty-free shop income, the repair of profitability is not as expected.

At the same time, the decline in performance in the previous period led to weakened financial resilience.

We observed that the scale of interest-bearing debt of airport sample companies in 2023 doubled compared to 2019, which makes the financial condition of airport companies significantly improved compared to 2022, but there is still a certain degree of decline compared to 2019.

We expect that with the gradual recovery of international routes, the demand for civil aviation passenger transport will continue to grow, and it is more likely that the operating performance and financial condition of most airports and airport companies will continue to improve.

Especially under the influence of favorable factors such as the increase in the number of international flights, the optimization of visa and entry and exit policies, etc., there is still a large room for the growth of international route passenger transportation volume in the future, and the financial resilience of airport companies will be further repaired.