Performance review

Remain ahead of the industry

The performance exceeded our expectations

The company announced 3Q19 results: the company's revenue increased 1.2% year on year to 3,058 billion yuan, gross profit fell 2.3% year on year to 1,420 million yuan, and the net profit of the mother increased 28.3% year on year to 1,146 million yuan, corresponding to profit of 0.26 yuan per share. 1-3Q2019, the company's revenue was 8.780 billion yuan, up 4.4% year on year; net profit was 3.124 billion yuan, up 14.5% year on year. The performance exceeded our expectations, mainly due to the rapid growth of the brokerage business, which contributed to the profit growth rate of 6ppt.

The company's 3Q road production revenue and traffic increased 1.3% and 4.8% respectively over the same period last year. Look at it by road section:

Revenue from the Shanghai-Hangzhou section of the Shanghai-Hangzhou-Ningbo Expressway decreased 2.5% year on year, traffic decreased 0.5% year on year, traffic increased 9.0% year on year; revenue from the top three highways fell 1.0% year on year, and traffic increased 3.8% year on year; revenue from the Yongjin Expressway increased 13.0% year on year, traffic increased 16.6% year on year; Hangzhou-Ningbo Expressway revenue increased 8.8% year on year, traffic increased 9.6% year on year; traffic increased 0.7% year on year. The revenue of the newly acquired Zhoushan Bridge/Shenjiahu-Hangzhou Expressway was +0.2%/-4.5% year on year, and traffic was +0.9%/5.3% year on year.

The 3Q brokerage business performed well: Zheshang Securities's 3Q revenue increased 68.7% year on year, and profit increased 41.6% year on year.

Development trends

The main road industry continues to grow at a slow pace. Due to the fact that foreign trade conditions have not improved and the macroeconomic environment has affected, cargo traffic such as the Shangsan Expressway continues to decline, and the business growth of the newly acquired Zhoushan Bridge/Shenjiahu-Hangzhou Expressway is slightly weak.

Since the company's own investment is concentrated on fixed income products, we expect the operating performance of the 4Q brokerage business to remain stable from month to month.

We anticipate that the company may maintain a stable amount of dividends. Although the company's main road business is under relative pressure this year, we expect that a stable amount of dividends will help reduce stock price fluctuations due to fluctuations in brokerage performance.

Profit forecasting and valuation

The 2019/20 EPS forecast for RMB0.87 (+9%) /0.97 yuan (+12%) is maintained for the time being, corresponding to the 2019/20 6.6/5.9 times price-earnings ratio and 7.1%/7.9% dividend yield. Maintaining an outperforming industry rating and HK$8.59 (corresponding to 9/8 times P/E in 2019/20), the current stock price has room to rise by 34%.

risks

Trade frictions between China and the US have intensified, and the stock market slump has affected brokerage business.