Analysis of Return on Equity and Strategies to Enhance Capital Return Rate After Beijing-Shanghai High-Speed Railway's Acquisition of Beijing-Fuzhou Anhui High-Speed Railway Company

Beijing-Shanghai High-Speed Railway Co., Ltd. (stock code: 601816.SS), as the operator of China’s busiest high-speed railway line, completed the acquisition and integration of Beijing-Fuzhou Anhui High-Speed Railway Company in 2020, forming a railway network covering the two core economic zones of Beijing-Tianjin-Hebei and Yangtze River Delta [0]. According to the latest financial data, the company achieved an operating revenue of RMB42.157 billion and a net profit attributable to shareholders of RMB12.768 billion in 2024, a year-on-year increase of 10.59%, showing a good recovery trend in the post-pandemic era [0]. However, the phenomenon that the Return on Equity (ROE) has continued to be below 7% has raised market concerns about its capital efficiency.

From the market performance perspective, Beijing-Shanghai High-Speed Railway currently has a market capitalization of $254.9 billion, a share price of $5.21 per share, a price-earnings ratio of 19.52 times, and a price-to-book ratio of 1.25 times [0]. Technical analysis shows that the stock price has been consolidating in the range of $5.17 to $5.24, showing a neutral consolidation pattern. The KDJ indicator shows a bullish trend, but the MACD has not formed a golden cross signal, so the overall trend is still unclear [0]. The DCF valuation model shows that the current stock price is significantly undervalued: the reasonable value in the conservative scenario is $15.80, $18.16 in the base scenario, and as high as $47.88 in the optimistic scenario. The probability-weighted valuation is $27.28, which has an upside potential of 423.6% compared to the current price [0].

The acquisition of Beijing-Fuzhou Anhui High-Speed Railway Company is an important step in the company’s strategic layout. This transaction allowed the company to obtain important high-speed railway line assets connecting the East China region, but also brought significant financial pressure. From the change trajectory of ROE, the company’s ROE reached a high level of 7.88% in 2019 before the acquisition, but dropped sharply to 3.50% in 2020 after the acquisition was completed, further fell to 2.80% in 2021, and even turned negative in 2022 [0]. This trend deeply reflects the dilution effect of merger expansion on capital return rate.

After the acquisition of Beijing-Fuzhou Anhui, the company’s net asset scale expanded significantly. According to financial data, the net assets attributable to shareholders of the listed company reached RMB202.403 billion in 2024, an increase of about 10% compared with RMB183.997 billion in 2021 [0]. However, the profit recovery of Beijing-Fuzhou Anhui High-Speed Railway Company takes time: it had a net loss of RMB2.09 billion in 2020, maintained a loss of about RMB2.8 billion in 2021 and 2022, narrowed to RMB970 million in 2023, and further reduced to RMB270 million in 2024 [0]. In the stage where the net asset scale expands but profits have not been fully released, the significant dilution of ROE is an inevitable financial result.

Changes in profitability indicators are another important factor for ROE pressure. Data shows that the gross margin of Beijing-Shanghai High-Speed Railway dropped from 51.1% in 2019 to 45.4% in 2024, a decrease of 5.7 percentage points [0]. This change is mainly due to the following aspects: First, the structure of passenger travel has changed in the post-pandemic era, and the proportion of long-distance travel has decreased periodically, leading to limited elasticity of passenger revenue; Second, the operating cost of high-speed railways is relatively rigid, including fixed costs such as equipment maintenance, labor costs, and energy consumption, which are difficult to decrease in proportion to revenue; Third, the management fee expenditure under the entrusted transportation management model also squeezes profits to a certain extent.

From an international comparison perspective, the operating profit margin of Beijing-Shanghai High-Speed Railway is still at a high level. In 2024, the company’s operating profit margin was 40.58%, higher than Tokai Passenger Railway’s (Japan) 38.37%, East Japan Railway Company’s 13.05%, and Guangshen Railway’s 5.44% [0]. This indicates that Beijing-Shanghai High-Speed Railway still has strong relative competitiveness, but there is still a gap compared with its historical high, which is an important factor dragging down ROE.

It is worth noting that the asset-liability ratio of Beijing-Shanghai High-Speed Railway has shown a downward trend after the acquisition, from 28.50% in 2021 to 20.87% in 2024 [0]. This change seems to indicate an improvement in the company’s financial condition, but from the perspective of DuPont Analysis, a lower financial leverage means a smaller equity multiplier, which will limit the room for ROE improvement when the net profit margin and asset turnover rate are fixed. Compared with similar Japanese companies, Tokai Passenger Railway has an asset-liability ratio of 54.87%, and East Japan Railway Company has as high as 71.77% [0]. A higher leverage level is an important reason for their relatively high ROE. While pursuing financial stability, Beijing-Shanghai High-Speed Railway also needs to balance the relationship between capital structure optimization and shareholder return improvement.

As the core asset of the acquisition, the progress of Beijing-Fuzhou Anhui’s turnaround directly affects the improvement of overall ROE. At present, Beijing-Fuzhou Anhui has shown a significant recovery momentum: its revenue reached RMB5.87 billion in 2024, a record high since the acquisition, with a year-on-year increase of 7.3% [0]. The loss narrowed from RMB2.09 billion in 2020 to RMB270 million in 2024, with an average annual narrowing rate of more than 30%, indicating that its operating quality is steadily improving.

To accelerate the profit recovery of Beijing-Fuzhou Anhui, the company should take the following measures: First, optimize the train operation plan, flexibly adjust capacity allocation according to the time-space distribution characteristics of passenger flow, and improve the train occupancy rate and revenue per passenger-kilometer; Second, deepen cooperation with local governments along the line, develop station-city integration projects, and increase non-ticket revenue sources; Third, promote intelligent operations, optimize energy consumption management through big data analysis, and reduce unit operating costs; Fourth, strengthen content synergy with the main Beijing-Shanghai line, develop connecting products, and enhance the attractiveness and passenger flow of the overall road network.

From an international comparison, the asset-liability ratio of Beijing-Shanghai High-Speed Railway is at a low level, which is not only a reflection of financial stability but also means that there is a large space for ROE improvement. Moderately increasing the debt level can reduce the Weighted Average Cost of Capital (WACC). Currently, the company’s WACC is about 5.9%, including an equity cost of 6.5% and a debt cost of 3.7% [0]. Considering that the company has strong operating cash flow (the net cash flow from operating activities reached RMB20.065 billion in 2024), it has the ability to support moderate leverage.

Strategies to optimize the capital structure include: moderately increasing the scale of medium and long-term debt financing while maintaining an investment-grade credit rating; using the current favorable interest rate environment to replace high-interest debt and reduce financial expenses; exploring innovative financing tools such as Real Estate Investment Trusts (REITs) to release the value of some existing assets; establishing a dynamic capital allocation mechanism to dynamically adjust investment scale and financing structure according to project return rates.

Asset turnover rate is the third key dimension of DuPont Analysis. As a capital-intensive industry, Beijing-Shanghai High-Speed Railway has a high proportion of fixed assets such as high-speed railway lines, station facilities, and EMUs. Improving asset utilization efficiency is of great significance to ROE improvement. Specific measures include: First, optimize the train schedule design to improve capacity utilization during peak hours while increasing marketing incentives during off-peak hours; Second, promote equipment renewal and transformation, adopt more efficient EMUs and technical equipment to improve single-train capacity and operating efficiency; Third, explore asset lightening models, such as sale-leaseback for some non-core assets to revitalize existing stocks; Fourth, strengthen coordination with China Railway Group and railway bureaus along the line, optimize cross-line train operation plans, and improve the overall operating efficiency of the road network.

Another important path to improve ROE is to expand revenue sources and optimize the revenue structure. Experience from international mature railway operators shows that non-ticket revenue is an important engine for improving profitability. Beijing-Shanghai High-Speed Railway should focus on developing the following areas:

: Relying on the location advantages of stations along the line, cooperate with local governments to develop commercial complexes, office buildings, hotels and other property projects to obtain stable rent and property income. Currently, the company is exploring a service development model in cooperation with catering and hotels, which can be further deepened in the future.

: Advertising carriers such as high-speed rail carriages, stations, and platforms have high exposure value, and brand sponsorship and advertising revenue can be introduced.

: Establish a membership system, provide differentiated service products such as business seat value-added services, point malls, and priority ticket purchase rights to increase customer stickiness and additional income.

: Respond to the national cultural tourism integration strategy, develop “high-speed rail + cultural tourism” products, cooperate with scenic spots and travel agencies along the line, provide package services, and share the dividends of tourism consumption.

In the process of profit recovery and capital efficiency improvement, a reasonable dividend policy helps maintain market confidence and support valuation recovery. Beijing-Shanghai High-Speed Railway has maintained a stable dividend tradition from 2020 to 2024, with an average annual dividend amount maintained at a high level [0]. With the narrowing of Beijing-Fuzhou Anhui’s losses and the recovery of overall profitability, the company has the conditions to increase the dividend payout ratio.

It is recommended that under the premise of ensuring capital needs and controllable debt ratio, the dividend payout ratio should be increased to more than 50% of the net profit attributable to shareholders, so that the dividend-driven factor of ROE can be enhanced. At the same time, consider implementing a share repurchase plan to repurchase and cancel shares when the stock price is undervalued, thereby increasing earnings per share and ROE.

Based on the assumption that Beijing-Fuzhou Anhui’s losses continue to narrow and the main business recovers steadily, the financial performance of Beijing-Shanghai High-Speed Railway from 2025 to 2027 is expected as follows: In 2025, the operating revenue is expected to reach about RMB45 billion, the net profit attributable to shareholders is about RMB14 billion, and the ROE is expected to rise to about 6.8%; In 2026, as Beijing-Fuzhou Anhui approaches break-even, the overall revenue is expected to exceed RMB48 billion, the net profit reaches RMB15.5 billion, and the ROE is expected to reach 7.3%; In 2027, Beijing-Fuzhou Anhui is expected to achieve profitability, the overall revenue exceeds RMB52 billion, the net profit reaches RMB17.5 billion, and the ROE is expected to rise to about 7.8%.

The DCF valuation model shows that the current stock price of Beijing-Shanghai High-Speed Railway is significantly undervalued [0]. The reasonable value in the conservative scenario is $15.80, with an upside potential of 203.3% compared to the current $5.21; the reasonable value in the base scenario is $18.16, with an upside potential of 248.6%; the reasonable value in the optimistic scenario is as high as $47.88, with an upside potential of 819% [0].

Considering the company’s strategic position as a leading high-speed rail operator, the continuously improving profit trend, the turnaround expectation of Beijing-Fuzhou Anhui, and the significantly undervalued valuation level, it is recommended that investors keep an eye on it. In terms of operation strategy, a batch-wise position building approach can be adopted, gradually building positions in the range of $5.0 to $5.3, with a target price range of $8 to $10 and a stop-loss level set at $4.5.

Although Beijing-Shanghai High-Speed Railway has medium and long-term investment value, investors still need to pay attention to the following risk factors: First, macroeconomic fluctuation risk—business activities and passenger travel demand are sensitive to the economic cycle; Second, transportation mode competition risk—competition from air and road transportation may affect high-speed rail passenger flow; Third, energy price risk—electricity cost accounts for a relatively high proportion of operating costs, and rising electricity prices may compress gross profit margins; Fourth, risk of slower-than-expected turnaround of Beijing-Fuzhou Anhui—if passenger flow recovery is slow or cost control is ineffective, the loss cycle may be extended.

The above chart shows the ROE trend, revenue and profit changes, the narrowing of Beijing-Fuzhou Anhui’s losses, and the comparison of profitability indicators of Beijing-Shanghai High-Speed Railway from 2019 to 2024. Data shows that the company’s ROE experienced a trough after the acquisition of Beijing-Fuzhou Anhui, but has shown a recovery trend in 2023 and 2024. The continuous turnaround of Beijing-Fuzhou Anhui will provide support for future ROE improvement.

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[0] Jinling AI Financial Database - Company Overview, Financial Analysis, Technical Analysis and DCF Valuation Data of Beijing-Shanghai High-Speed Railway (601816.SS)

[1] Bank of China Securities - Research Report “Increase Holdings of Beijing-Shanghai High-Speed Railway” (August 1, 2025)

[2] 2024 Annual Report of Beijing-Shanghai High-Speed Railway Co., Ltd. - http://static.cninfo.com.cn/finalpage/2025-04-30/1223415927.PDF

[3] Summary of 2024 Annual Report of Beijing-Shanghai High-Speed Railway Co., Ltd. - https://file.finance.qq.com/finance/hs/pdf/2025/04/30/1223415932.PDF