A leader in road and bridge construction in the province, with continuous injection of high-quality assets: the company was founded in 1948 and has a rich brand heritage. It is the largest and most powerful road and bridge construction enterprise in Shandong Province. The company mainly focuses on road and bridge construction, and the construction business accounts for more than 95% of total revenue. High Speed Group is the controlling shareholder of the company, holding 55.69% of the shares. The company's contribution to the Group's profit has continued to rise year by year in recent years. After the joint restructuring of the High Speed Group and Qilu Expressway in 2020, the part where the business of the unit under the former Qilu Transportation Division coincided with the company's business is expected to be injected as high-quality assets.

The dominant market welcomes the spring breeze, and the time is right to follow the trend: the company is based on road and bridge construction business, which mainly focuses on highway construction. In the context of strong transportation countries, there are frequent warm winds in related policies. The 14th Five-Year Plan for Shandong Province is ambitious. After the joint restructuring of the group company, it became the only provincial highway construction entity. The company is the main contractor for its construction business. During the 13th Five-Year Plan period, the total number of related transactions from the High Speed Group accounted for about 51% of the company's total sales. The Expressway Group plans to build and renew about 40 key expressway projects in the 14th Five-Year Plan, with a total investment of 520 billion yuan. According to our forecast, the total related revenue from the Group is expected to exceed 200 billion yuan during the 14th Five-Year Plan period. In the future, the absolute value of related sales from major shareholders is expected to continue to grow based on increased investment in highways in the province, and become a stable increase in profits. It's the icing on the cake when the downstream market is booming, and a blessing in the face of a downturn in the downstream market.

On the fast track, multi-wheel drive is helping: in addition to being based on the traditional provincial road and bridge market, in recent years, mergers and acquisitions have been continuously extended to develop a second growth curve. On the market side, the company continues to expand markets outside the province and has made breakthrough progress in business in Sichuan, Yunnan and other places. In terms of business, the company is actively deploying and expanding 1) Highway maintenance: According to our forecast, in 2021-2025, the total toll road maintenance market in the country will be around 350 billion yuan, and the total maintenance revenue from within the group is expected to exceed 10 billion yuan; 2) Other second-level sub-businesses in the infrastructure sector, such as municipal engineering and water conservancy engineering, which have great potential in urban upgrading and transformation: The company has accelerated the pace of outreach mergers and acquisitions related fields in recent years. According to our calculations, these companies contributed about 27% of operating income and 19% of net profit in 2021. Furthermore, along with the increase in the scale of the company's business, capital requirements have also gradually increased. The company made full use of the advantages of financing channels and actively implemented various financing methods to enhance the company's financial strength. It is planned to issue 5 billion yuan of convertible bonds this year.

Investment advice: The company is based on road and bridge construction business. In the context of current policy warming and frequent restructuring and mergers of major shareholders, orders within the province are expected to increase profits steadily. Furthermore, in recent years, the company's expansion outside the province and other infrastructure fields has accelerated, and non-traditional business projects have increased. The two logics are superimposed, and the company's future revenue is expected to maintain a high growth rate and continue to grow under a high base. In summary, the company's EPS for 22-24 is estimated to be 1.75, 2.24, and 2.87 yuan/share, giving the company a PE of 6.48 times, corresponding to the target price of 11.29 yuan/share in 2022, covering the “Highly Recommended” rating for the first time.

Risk warning: infrastructure investment falls short of expectations, repeated impact of the epidemic, business expansion falls short of expectations, repayment risks