Shen High-Speed (600548.SZ) saw its stock price hit the lower limit shortly after the market opened on the morning of August 26th, following the announcement of a 16.72% decline in net profit for the half-year performance, closing at 10.03 yuan. Other high-speed highway stocks have also experienced some adjustments.

High-speed highway stocks are generally characterized by high dividends. Industry insiders believe that when investors choose high-dividend stocks, they should not only consider the static dividend yield but also pay more attention to changes in the company's fundamentals. On the other hand, investors' "herding" towards high dividends has been going on for a long time. Previously, the underperformance of coal stocks led to significant adjustments in some stocks, and similar situations may occur with high-speed highways, so investors need to be cautious.

Behind the high dividends: Planned financing of 4.9 billion yuan

In the first half of 2024, Shen High-Speed achieved a total revenue of 3.757 billion yuan, a decrease of 8.92% year-on-year, mainly due to a decrease in toll income, construction service income under the franchise arrangement, and engineering commissioning construction management service income; the net profit attributable to the shareholders of the parent company was 774 million yuan, a decrease of 16.72% year-on-year, mainly due to the change in the fair value of the equity of the participating companies held and the increase in the provision for asset impairment losses.

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Out of the 3.757 billion yuan in revenue, it includes about 2.434 billion yuan in toll income, about 735 million yuan in environmental protection business income such as clean energy and solid waste resource utilization, and about 588 million yuan in other income, accounting for 64.78%, 19.56%, and 15.66% of the group's total revenue, respectively.

Shen High-Speed stated that in the first half of 2024, the toll income decreased slightly year-on-year due to factors such as the prolonged low-temperature snow and ice disasters in the central and eastern regions of China, frequent typhoon and heavy rain weather in Guangdong Province, and an increase of 3 days in the number of free passages for small passenger cars during holidays compared to the same period last year. In addition, the operational performance of toll road projects is also affected by industry policies, changes in surrounding competitive or synergistic road networks, the construction or maintenance of the projects themselves, the repair of connected or parallel roads, the implementation of urban traffic organization plans, and other factors, as well as the positive or negative impacts of other modes of transportation.

Previously, Shen High-Speed stated that based on the company's financial status and investment plans, it plans to issue no more than about 654 million A shares to no more than 35 (including 35) specific objects, raising a total of no more than 4.9 billion yuan. After deducting the issuance costs, it will be used for the investment and construction of the outer ring project and the repayment of interest-bearing debt, etc. The application for this issuance was accepted by the Shanghai Stock Exchange on May 22, 2024.

On July 27th, Shen High-Speed stated in the "2024-2026 Three-Year Shareholder Return Plan" that the company will adhere to the "toll road + big environmental protection" dual main business strategy, consolidate and enhance the advantages of the toll road industry, focus on investing in the construction and expansion of new and existing road projects, and seek investment and merger and acquisition opportunities for high-quality projects. Under the condition of meeting the cash dividend conditions and ensuring the company's normal operation and development capital needs, from 2024 to 2026, the company will distribute no less than 55% of the annual realizable distributable profits in cash each year.

In 2023, Shen High-Speed paid a cash dividend of 5.5 yuan for every 10 shares, with a dividend yield of 5.48% based on the latest closing price.

Is the "herding" of high-speed highway stocks facing disintegration?Recently, individual stocks of expressway companies have been setting new highs in their share prices. On August 22, Shenzhen Expressway reached a historical high of 11.26 yuan, while leading stocks such as Ninghu Expressway and Yue Expressway set their historical highs on August 23.

Over the past two to three months, as related listed companies disclosed earnings that fell short of expectations, coal stocks, which are high dividend representatives, have already seen significant adjustments, with leading stocks like Yankuang Energy and Pingmei Shares experiencing cumulative adjustments of over 30%.

Some market participants are concerned that the expressway sector may face a similar situation.

Yang Zhenhua, an analyst at SinoPac Securities, stated that the cash flow of expressway companies is very stable, and the natural growth in the number of vehicles provides growth potential for toll revenue. As a result, expressway companies generally adopt a high dividend payout policy. The main contradiction in the industry—the sustainability issue brought about by the concession period—may be effectively resolved with the implementation of the "Infrastructure and Public Utilities Concession Management Method," which could extend the maximum period to no more than 40 years.

Mo Xiaocheng, fund manager at Huanrui Tianze, told reporters from Yicai that some investors place too much emphasis on past performance and the stability of companies. Market funds have been chasing these high dividend companies, actually to avoid other risks and pursue this certainty, including banks, expressways, and resources, which have been popular with funds in the first half of the year. However, from a long-term perspective, investors should now be more inclined to invest in growth industries, as this represents future earnings growth and cash flow.

Hu Yu, chief economist at Xinding Fund, told Yicai reporters that the investment style of high dividend bonds may also have to wait for a reversal in the A-share market to truly break. In other words, the current market's "group hug" style of high dividends is also highly correlated with the rise in the bond market. With the Federal Reserve's interest rate cuts and the People's Bank of China's counter-cyclical adjustments to the bond market, the high dividend style will change. At this stage, it is possible to gradually reduce the proportion of the high dividend sector and increase the allocation of cyclical, low valuation sectors.

Fan Jituo, a strategy analyst at Cinda Securities, stated that since 2021, China's economic center has once again faced changes, and the global inflation and interest rate environment has also seen a central shift. All these changes have made industry track investment increasingly difficult since 2022. Given that these changes occurred when GDP (especially real estate) growth rates changed again, it is possible that this style change is relatively long-term, and in the future, for a long time, cash flow, dividend rates, and stability may all be more important.