The revenue of Dagong Road (06888 HK) in the first half of 2016 increased 21.2% year on year to 240 million yuan (HK$, same below), and net profit increased 0.8% year on year to 19 million yuan. The performance was in line with expectations. The increase in revenue comes from an 8.2% year-on-year increase in maintenance revenue brought about by the merger of Tianjin Expressway Maintenance Co., Ltd.

Revenue from “in-situ ripened” asphalt pavement maintenance fell 26.1% year-on-year, but it was not the “in-situ ripened” asphalt pavement maintenance business that began generating revenue. Overall pavement maintenance service business revenue increased 8.2% year-on-year to 156 million yuan. The company's asphalt pavement repair equipment revenue increased 55.9% year-on-year to 84 million yuan. The company plans to expand this business overseas in the second half of the year. We expect the company's asphalt pavement maintenance and asphalt pavement maintenance equipment business revenue from 2015 to 2018 to be 5.7% and 37.5%, respectively. Although the company has begun experimenting with the PPP model, the company will benefit very limited in the short term.

Earnings forecasts per share from 2016 to 2018 were lowered by 8.2%, 5.9% and 10.0% to HK$0.056, HK$0.064 and HK$0.072. The target price was lowered to HK$0.95, equivalent to 16.9/14.9/13.2 times the price-earnings ratio for 2016/2017/2018, and downgraded to a “neutral” rating because the valuation was unattractive.