Zhejiang Expressway Co (H-share) is a Hong Kong-listed HK$45 billion ($7.33 billion) market capitalisation company that is primarily engaged in developing, constructing, operating and managing high-grade roads and toll roads in China’s Zhejiang province. Almost 60% of the company’s revenue comes from the toll road business segment, while close to 40% comes from the securities business segment. The securities business is conducted by its subsidiary, Zheshang Securities, a securities brokerage company listed on the Shanghai Stock Exchange. In its core business, the company has multiple projects to reconstruct and expand toll expressways, which should provide earnings visibility and support the company’s ability to pay dividends.
To pay dividends regularly, companies need to generate consistent cash flow. Specific industries and businesses can do this effectively by nature. One such business is a toll concessionaire, as regular cash flows can be expected after a large initial capital outlay to construct the toll road. Another example is a securities brokerage, where, regardless of whether an investor profits or loses, the brokerage fees are usually collected on every trade. Both industries depend on user volume, and a larger volume is more beneficial. Another option is to increase prices or fees, although in both cases, toll prices and brokerage fees are likely to be regulated by the relevant authorities. Regardless, generating consistent cash flow for dividend payments is relatively straightforward for these businesses if capital expenses are managed well.
The company in focus is Zhejiang Expressway Co. It is suitable for investors seeking regular dividend payments and healthy yields. Relative to the Hang Seng Index, Zhejiang Expressway’s stock beta, which measures stock volatility, has been well below the market beta of 1. The company’s monthly one-year, three-year, five-year, and 10-year betas are 0.49, 0.56, 0.71, and 0.75, respectively. This indicates that this stock is a safer option for investors, as it is less volatile than the general stock market.
