China, soon to be world’s largest logistics market, wouldn’t be where it is today without proper infrastructure.
The country needs infrastructure to transport goods effectively. Because of this, China’s State Council gave priority to over twenty cities in nine regions for an infrastructure upgrade in the next two years.
Improvements range from expressways, to air and sea ports.
Aiming at improving operational efficiency, this decision will also establish a wider network of expressways and roads. That’s on top of China’s already huge existing network.
The government’s move to focus on infrastructure development was received very well, especially since logistics facilities are in high demand.
A recent survey by PwC found one of the most important factors when choosing a location to do business in China is availability of infrastructure.
However, logistics infrastructure doesn’t end after the construction. Assets must be operated and maintained by experienced companies. One such firm in China is Zhejiang Expressway Co., Ltd. (HKG:0576).
Zhejiang Stock: A Play on Chinese Infrastructure
Established in 1997, Zhejiang Expressway Co., Ltd. is the Zhejiang Provincial Government’s main enterprise for investment, development, operation, maintenance, and management of high-grade roads in Zhejiang Province.
The company and its subsidiaries have concession rights to operate the Shanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway for a period of 30 years. They’re also operating the Jinhua Section of the Ningbo-Jinhua Expressway for 25 years.
Zhejiang Expressway and its subsidiaries also carry out ancillary businesses. These include automobile servicing, operation of gas stations, and billboard advertising along expressways.
Investment in Infrastructure Can Do No Wrong
InvestAsian believes Zhejiang stock is the right choice for your portfolio because of several reasons.
First, it’s one of the leading performers in the industry. China experienced an economic downturn which resulted in many local companies being worse off. But Zhejiang is still on its way to a year of higher revenue and profit.
Interregional tollways have inelastic demand. After all, commuters and trucking companies must use these roads despite economic conditions. Zhejiang stock should perform well regardless of what the future holds.
The latest quarterly report shows Zhejiang experienced a tremendous rise in sales – a 39.5% YoY increase. They also predict net profit margin will increase.
Second, the business provides great returns for its shareholders. Boasting a very impressive ROE of 14.3% and an ROI of 16.3%, Zhejiang continues to rewards investors handsomely.
Third, their stock has attractive valuation metrics. With a P/E of 11.3 and dividend yield of over 5%, Zhejiang stock is a recommended buy.
Interested in the Chinese stock market? You might also want to see our analysis of Shenhua stock, which is the nation’s biggest coal company. We recommend two overlooked yet undervalued Chinese bank stocks as well.
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