Shares of Taiwan High Speed Rail Corp (THSRC, 台灣高鐵) continued to push higher last week amid signs of a steady growth in its core business, with the stock gaining 25.1 percent in the third quarter.
Given the stock’s defensive nature and the rising domestic demand for high-speed rail services, as well as the company’s strengthening balance sheet and sound dividend yield, THSRC closed at NT$29.9 on Friday in Taipei trading, the highest since it became a publicly listed firm on Oct. 27, 2016.
Overall, figures have been bolstered by the company’s rising ridership and steady sales growth, as well as its efforts to repay debt and reduce financial cost, Jih Sun Securities Investment Consulting Co (日盛投顧) said in a note to clients.
“THSRC’s debt level and interest expense should fall further in the second half, benefiting its profit growth,” Jih Sun analyst Louis Chan (詹其璋) said in the note on Thursday.
In the first half of the year, THSRC’s sales increased 4.46 percent year-on-year from NT$21.41 billion (US$700.8 million) to NT$22.37 billion, with ticket sales rising 4.4 percent and daily ridership increasing 5.3 percent in the period, while its loading factor also improved to 66.5 percent.
Operating profit rose by 5.72 percent annually to NT$9.61 billion in the first six months, while net profit increased 125.14 percent to NT$6.56 billion in the same period on the back of lower debt burden and tax exemptions. That translated into earnings per share (EPS) of NT$1.17, compared with NT$0.52 the previous year, company data showed.
THSRC’s debt-to-assets ratio dropped to 85.3 percent in the first half and the ratio of its interest expenses to operating profit fell to 28.5 percent.
Anticipating steady growth in its core business in the second half and a stable cost structure, the company is expected to report net profit of NT$10.46 billion for this year, an increase of 95.9 percent year-on-year, with EPS of NT$1.86, whiles sales are to increase 4.35 percent to NT$45.32 billion, Chan said.
As THSRC’s loading factor has risen to more than 80 percent during peak hours, the company in July increased the number of services by 15 per week and is to add another eight trips per week from Monday next week to fulfill rising demand.
“We believe there is resilient demand for high-speed rail transportation, given that 40 percent of demand is for business travel purposes, with another 40 percent from passengers returning home from work in cities, especially over national holidays,” Yuanta Securities Investment Consulting Co (元大投顧) analyst Juliette Liu (劉珮昀) said in a separate note on Thursday.
Moreover, the company has continuously facilitated transportation services by integrating high-speed rail with conventional transportation systems to promote domestic tourism, as well as enhancing off-peak ridership by diversifying product lines, Liu said.
THSRC has adopted a stable and balanced dividend policy with guidance of at least 60 percent of earnings each year to be paid out, which should be attractive to investors, she said.
Yuanta has a “buy” rating for THSRC with a target price of NT$33 on the stock.
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