In line with our expectations, 1H22 was affected by the epidemic + Guangfo expiration in the first half of the year, the company achieved operating income of 2.057 billion yuan, down 17.3% from the same period last year, and the net profit of returning mother was 774 million yuan, down 8.8% from the same period last year, which was in line with our expectations. The main reasons for the decline in 1H22 net profit are: 1) the traffic flow is dragged down by the epidemic; 2) Guangfo Expressway expires. Considering the possibility of recurrence of the epidemic, we downgrade the forecast net profit of homecoming in 2022-23-24 from 9.9 to 1.721 billion yuan. Our target price is 8.90 yuan (the previous value is 9.10 yuan), which is calculated by DCF and PE, and the DCF is based on WACC=7.61% (previous value:

7.43%), PE is based on 9.6x 2022E PE (previous value 9.7x). We expect the company's annual dividend yield on 2022-23-24 to be 6.9 pounds 7.9 pounds 8.2% (assuming a dividend rate of 70 percent). Maintain "buy".

The epidemic in March-May dragged down road traffic in the Dawan area, and the impact of the expiration of Guangfo showed that the company's 1Q/2Q revenue decreased by 15% and 19% compared with the same period last year. Among them, the Guangfo Expressway has stopped charging since 2022-3-3, and the drag on 1Q/2Q revenue due by Guangfo is about 3.5% and 8.8%. The epidemic spread at many points in Guangdong Province in the first half of the year, especially the implementation of strict closure and control measures in March-May, which dragged down the growth rate of Guangdong-Hong Kong-Macau Greater Bay Area's traffic flow. As a result, the revenue of Fokai / Guangzhudong / Guanghui Expressway, which is controlled by the company, fell 7.3%, 20.0% and 11.2% in the first half of the year compared with the same period last year. According to the Planning Institute of the Ministry of Communications, from January to February, highway traffic in the Guangdong-Hong Kong-Australia Bay area decreased by 4% compared with the same period last year. However, in March / April / May, the decline in traffic increased to 12% in March / April / May to 12% in March / April / May. The June traffic increased by 2% above the low base and decreased by 5% in July compared with the same period last year.

The depreciation reduction of Fokai and the reduction of financial expenses still help the company to reduce 1Q/2Q operating costs by 24% and 19% compared with the same period last year. The main reasons are: 1) the company adopts the traffic flow depreciation method, and the decline in traffic flow reduces the depreciation of road production; 2) due to the reapproval of the charging period (the accounting estimate change is implemented in June 2021), the depreciation expense is reduced, and the impact of the accounting estimate change on 1Q/2Q cost is about 13% and 9%. Combined with changes in revenue and costs, the company's 1Q/2Q gross profit decreased by 10% and 20% compared with the same period last year. Net cash in operating activities decreased by 9% and 30%. The company's investment income in the first half of the year decreased by 5.6% compared with the same period last year, of which the investment income of joint ventures and joint ventures decreased by 17% compared with the same period last year, mainly because the participation in road production was affected by the epidemic and travel restrictions. The company's 1H22 financial expenses decreased by 28% compared with the same period last year, mainly due to the decline in the amount of borrowing and interest rates.

Pay attention to the prevention and control of the epidemic situation in the second half of the year. Since the bus was greatly affected by the epidemic prevention policy in July, the impact of the epidemic continues, and the degree of recovery of highway traffic flow is related to the situation of epidemic prevention and control.

The company's core road production is located in the economic prosperity of Guangdong-Hong Kong-Macau Greater Bay Area, bus flow accounts for a relatively high. Looking back on the first half of the year, the traffic of trucks on expressways across the country was slightly affected by the epidemic, but the flow of buses was seriously damaged, and the recovery process of buses also lagged behind that of trucks. However, in the long run, the change of the company's road network has a positive impact. The Guangfo-Fokai-Kaiyang-Yangmao West Guangdong Corridor has completed the reconstruction and expansion, and the vehicles diverted to Yunzhan Expressway in the early stage continue to return to the passageway. Guangfo free of charge also has an inducing effect on Fokai.

Risk hint: the epidemic suppresses the willingness to travel, the economic growth of the Pearl River Delta slows down, and the diversion of the road network is higher than expected.