There is no denying that the real estate industry sees huge profi ts, but it is hard to imagine that the gross profits of highway companies have reached a very high level, becoming another typical industry of huge profi ts. T e sky-high road toll is attracting more and more public concerns about the seemingly low-profi le and stable industry.
Based on the WIND statistics, reporters from the Securities Daily found that 19 highway companies listed in the A-share had claimed a more than 35% gross profi t in their annual reports, with 15 companies reaching more than 50%. Meanwhile, only 21 out of the 124 listed property companies had achieved a more than 50% gross profi t. Top of the rank is Chongqing Road and Bridge Company, reaching 88.26% and also heading the chart in the year 2009. Following down the list are Fujian Highway and Anhui Expressway, reaching 72.73% and 70.61% in their gross profi ts respectively.
Also, the highway companies have received high level of net profi ts. T e highway companies share diff erent views about the huge profi ts earned in the highway industry, but one thing in common is that they all deny the windfall profi ts.
Anhui Expressway: Toll rising due to infl ation
The resource shows that Anhui Expressway (600012. SH) was listed in 2003 and has six highways charging fees in Anhui Province. Charging the highest annual fees is the Hen-
ng Highway, with its 2010 revenues amounting to 0.85 billion yuan, and ranking the second it the Gaojie Highway, with its 2010 revenues reaching 0.53 billion yuan. Yesterday journalists of Securities Daily interviewed with an nsider from Anhui Expressway, who said that “the current charge period of highway is less than 30 years, and the high gross profits of the company is due to the low costs. For example, the Hening Highway has been built before 2000, whose costs are much lower than the current highway projects. Some coastal regions charge higher tolls, like some highway companies in Guangdong Province.”
Just in November of 2010, the Anhui Expressway raised the standards of toll.
The company says it will folow the notifications issued by the Transportation Department and the Price Department of Anhui Province to charge new tolls from November 10, 2010 in its four highways: Hening Highway, Gaojiu Highway, Xuanguang Highway and Lianhuo Highway (Anhui part). T e toll for passenger coaches will rise by 0.1 yuan/km, a 10% percent rise; and the toll for carriage trucks rose by 0.01 yuan/t?km, a 15% rise.
The adjustment of charges will raise the annual revenue of the company by 13% and net profi ts by 33%.
In addition, the company has increased punishments on over-loading problems. Analytical institutions say that although there is no data about the overloaded vehicles, the impact of this new policy is hard to estimate. But t could be believed that profi ts due to this round of toll rise will go beyond our expectations. After the new standard implemented on November 10, the revenue of 2010 will rise by 2% and the profi ts will go up by 4.5%, and the figures for the year 2011 are 11% and 26% respectively.
“T e toll should be raised at least by the provincial Price Bureau.” Insider from Anhui Expressway told reporters. Then the report asked: “On what grounds could the Price Bureau raise the toll? Is it due to the demands by the highway companies?”
The insider answered: “These companies must communicate with related departments of the government.”
As for the trigger of this toll rise, the insider said: “Because of the infl ation.”
The reporter asked: “Now everybody is pointing his/her fingers toward the highway industry, saying that the overcharge has led to the rise of commodity price, and the heating of inflation. Now you think it is because of the infl ation that raising price is reasonable, has it become a vicious circle?” For this, the insider said that:“T ere must be other reasons than the infl ation.”
Chongqing Road and Bridge Company: Fee slump leads to defi cits
In recent years, the fact that the estimated revenue of GuangzhouShenzhen Highway has surpassed 30 billion yuan has drawn wide criticism; since the figure is double that of the investments. As for the rumors about reduction of the highway toll, Yang Hai, board director of the GuangzhouShenzhen highway said to the media in the conference that the probability for sudden changes of highway charging policy is very low. “Construction with debts and repayment through charging fees” will continue, and this policy will promote the developments of highway and improve the transportation. He believes that the government will reconsider the prospect of highway development and the future policies would not impose heavy impacts on the related listed companies, since many highway projects are under way.
Chongqing Road and Bridge Company, which ranks fi rst in its gross profits, shared the similar views with the board director of GuangzhouShenzhen Highway.
An insider from Chongqing Road and Bridge Company told reporters that:“It is hard to deny that the company gross profi ts are high, but 90% might be over-exaggerating, because the calculation method is not right. People who understand the company’s conditions will know that the company owns three lowcost old bridges, and the company hasn’t raised the bridge toll for many years, because all the charges have been written into contracts with the government and the pricing results from reasonable calculations. It is more appropriate to say that the number of vehicle population has increased, which is higher than the expected standard, but the increased costs of road and bridge constructions might neutralize the profi ts from rising vehicle fl ows. Now those who think the highway tolls too high are logistics and transportation companies, who would benefit much from the falling tolls, while are susceptible to the rise of tolls. Although the highway toll has been kept stable for years, they could not bear it when the oil price rose from 3 yuan to 8 yuan per gallon.
T en will there be space for reducing the tolls since the gross profi ts are claimed to be high? The insider from Chongqing Road and Bridge Company points out that: “T e company will suffer loss if the toll standard is reduced.”
One analyst told reports that: T e highway industry has shown many problems, such as short intervals between toll station and different toll standards among provinces. But it is inappropriate to compare the gross profi ts of the highway industry with the property companies. We should compare the rate of return on average equity.
But even for the rate of return on average equity, reports conclude after researching the WIND data that the highway companies could match some of the property companies.
It is evitable that the disputes about whether the highway industry is earning huge profi ts will continue, but it is also hard to deny that it is time to make a change since the high tolls have pushed up the social transaction costs.