Currently, 17% of China's highways, primary highways and secondary highways need to be repaired between 2016 and 2020. We expect China's highway maintenance expenses to increase from 78 billion yuan (RMB, same below) in 2015 to 99 billion yuan in 2020.

Yingda Highway (06888 HK, the “Company”) uses heat regeneration technology to provide comprehensive pavement maintenance services in China. The company currently has two business segments: the asphalt pavement maintenance department, which provides services to repair damaged asphalt pavement surfaces, and the asphalt pavement maintenance equipment division, which manufactures and sells related equipment.

We expect the company's revenue to increase from HK$678 million in 2015 to HK$841 million in 2017, or a compound annual increase of 29.2%. We expect gross margin to increase from 33.1% in 2015 to 33.6% in 2017. We expect the company's net profit to increase from HK$81 million in 2015 to HK$103 million in 2017, or a compound annual increase of 20.7%.

For the first time, we have provided earnings forecasts of HK$0.075, HK$0.086 and HK$0.095 per share for the period 15-17, respectively, or a compound growth rate of 20.7% for 2014-17. We set the company's target price of HK$1.39, corresponding to the expected price-earnings ratio of 18.6/16.2/14.6 times 2015/2016/2017. For the first time, a “collection” rating has been given. The main risks are lower than anticipated government infrastructure expenses and difficulties in recovering receivables.