Jilin Expressway released its 2016 annual report. In 2016, the company achieved operating income of 775 million yuan (+38.00%), gross margin rose to 66.7% (+4.1pct), net profit attributable to the parent company was 192 million yuan (+37.9%), EPS was 0.16 yuan, and it is proposed to distribute a dividend of 0.48 yuan (tax included) for every 10 shares.

The increase in highway toll revenue contributed to the increase in revenue. The company's operating income rose 38% year on year in 2016, and net profit attributable rose 37.87% year on year to 192 million yuan. The main reason was the completion of the expansion of the Changping Expressway, the company's core road production, the traffic environment improved, and tolls increased 35.66%.

The completion of the two-way eight-lane expansion will provide the company with a steady increase in cash flow. The company achieved the two-way eight-lane expansion of its core asset, the Changping Highway, in October 2015. The traffic capacity was more than 2.5 times that before the expansion. Considering that the expressway operated by the company is an important section connecting the three northeast provinces, the further improvement of the national road network will bring new traffic flow to the highways operated by the company. We expect that the expanded expressways will provide the company with a steady increase in cash flow in the future.

A cash injection of no less than 400 million yuan strengthened the company's resilience to risks. According to the company announcement, although the restructuring project was terminated because the company was unable to obtain operating qualifications such as gas stations in the service area within a short period of time, the controlling shareholder, Jigao Group, plans to inject no less than 400 million yuan of cash into the company through a non-public offering. We believe that in the future, with this cash injection, the company's resilience to risks will be further strengthened on the basis of existing ones.

Investment advice: Without considering the impact of the controlling shareholder's future cash injection on the company, we expect the company's 2017-2018 EPS to be 0.12 and 0.13 yuan respectively, giving it an “increase in holdings - A” rating, with a target price of 4.8 yuan for 6 months.

Risk warning: traffic falls short of expectations, uncertainties about non-public offerings, etc.