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China's listed transport infrastructure companies (toll road, railway, port and airport) have a total market cap of US$206bn as of 21 August 2023, representing 20% of listed transport infrastructure companies globally. We compare China's transport infrastructure companies with their global counterparts on cash flow generating potential and weighted average cost of capital (WACC) factors

The COVID-19 pandemic had a significantly negative traffic impact on transport infrastructure globally. However, ports' volume and freight railway traffic in China were less affected, due to China's resilient economy and market share gains in the global supply chain, especially when the rest of the world was struggling with supply chain disruptions. We also note the fast post-COVID recovery of toll road traffic and railway passenger volume in China, as H123 traffic surpassed the H119 level. Passenger volume of domestic flights in China rebounded rapidly (H123 volume was just 2% below H119)
after the COVID-19 pandemic, but regional and international flights have not recovered to the pre-pandemic level due to the limited number of flights operating.

The current ASP (revenue divided by traffic units) for rail and freight rates in North America are much higher than pre-COVID levels. In comparison, other transport infrastructure companies in China have small to mostly no tariff increases. We see ASP upside for:

1. China's toll roads on tariff hikes after capex expansions;
2. China's railways on floating ticket fares and the substantial discounts compared with airlines; and
3. China's ports on long-term potential tariff increases.

We value China's toll road operators at higher WACC assumptions compared with global peers, but we expect the improving policy environment in China to drive lower WACC for China's toll roads in the future. With China's toll road industry still generally struggling with significant losses, we expect more favourable policy support for the industry. In contrast, the French government indicated the profitability of the country's toll roads has exceeded the government's expectations since their privatisation in 2016. The French government is likely to raise the concession tax, which is targeted to raise a cumulative €2.5bn by 2030 with a targeted €500-600m run rate.

Most Chinese transport infrastructure companies focus their capital expenditures on core domestic infrastructure asset expansion, namely for ports, railway and airports, and Chinese ports are actively looking for international port assets in countries impacted by the Belt and Road Initiative. Though China's toll road operators have diversified their businesses to include property development, financial assets and renewable energy over the past decade, they are now refocusing on toll roads and have significant road expansion capex in the pipeline.

In terms of funding costs, five-year treasury bond yields from different countries show China and Japan have cost advantages over other countries. Moreover, given the btightening monetary policy globally, China may strengthen its cost advantages in the coming years. With lower leverage, we believe China's transport infrastructure operators are well positioned when it comes to development capex and M&A.