Core viewpoints

The main results are as follows: 1) the company's core roads Heining Expressway, Gaojie Expressway, Xuanguang Expressway and Ningxuan-Hangzhou Expressway are all trunk lines of the national highway across Anhui Province, and the remaining life of the core road is expected to be 25-30 years (considering the impact of reconstruction and expansion). And adopt the straight-line depreciation amortization method, the cost is more fixed, the performance flexibility is larger.

2) during the May Day holiday, the traffic volume of expressways in Anhui increased by 46.3% compared with 2019, and the number of cars in Anhui Province increased by 23.9% in 2022 compared with 2019. The growth of traffic flow in Anhui should be paid attention to. At the same time, the proportion of trucks in Anhui is relatively high, the average construction cost is lower, and the gross profit margin is higher than that of road production in some eastern areas.

3) the "four to eight" of the whole line of he-Ning Expressway will be completed by the end of 2022, and the "four to eight" of Xuanguang Expressway is expected to be completed in 2024, and the traffic flow is expected to double. The "broken roads" of Ningxuan-Hangzhou Expressway and Yuewu Expressway have been opened one after another and are expected to turn losses into profits.

4) the dividend ratio of the company will be increased to 75% in 2022, assuming that it is carried out in accordance with the company's Liuwu high-speed acquisition draft, the dividend yield of A shares is expected to be 7.59%, 8.40% and 9.28% in 2023-2025, and the dividend yield of Hong Kong shares is 10.67%, 11.80% and 13.03%.

5) the net profit from 2023 to 2025 is estimated to be 1.911 billion yuan, 2.171 billion yuan and 2.421 billion yuan. The A-share PE is valued at 9 times, based on the 2025 homing net profit (after the reconstruction and expansion of Xuan-Guang Expressway), corresponding to the A-share target price of 13.13 yuan per share, and the Hong Kong stock PE is valued at 7 times, corresponding to the target price of HK $11.12 per share.

Anhui Cross-provincial Trunk Expressway Company has a long remaining life of road production and greater performance flexibility, which is the only listed expressway company in Anhui province. the core road Heining Expressway and High Boundary Expressway are located in the Nanjing-Hefei-Wuhan passageway in the "two vertical and two horizontal" of the national trunk line. Xuanguang Expressway is the main road for Hangzhou to enter Anhui Province, and Ningxuan-Hangzhou Expressway connects Nanjing and Hangzhou directly. The average remaining life of the company's operating road property is expected to be 20.15 years (assuming that it will be extended by 25 years after the reconstruction and expansion of he-Ning Expressway, and the acquisition of Liuwu Expressway is not considered), which is at the leading level in the industry. The company uses the straight-line depreciation amortization method, the cost is relatively fixed, with the subsequent traffic flow recovery growth, the performance is more flexible.

The growth of traffic flow in Anhui region is worthy of attention, and the profitability of road production is strong. 1) during the May Day holiday in 2023, the national highway traffic volume increased by 20.6% on average compared with the same period in 2019, and Anhui highway traffic flow is expected to increase by 46.3% compared with the same period in 2019. In the long run, Anhui Province benefits from the integration of the Yangtze River Delta, with an average annual GDP growth of 10% from 2011 to 2019. At the same time, the number of cars in Anhui Province in 2022 is 23.9% higher than that in 2019. The growth of traffic flow in Anhui region is worthy of attention. 2) the proportion of trucks in Anhui regional road production is relatively high, and the toll standard of trucks is often higher than that of passenger cars, resulting in strong profitability of Anhui road production. 3) the average construction cost of expressway in Anhui Province is relatively low, the gross profit margin is higher than that of road production in some eastern regions, the net profit rate is the highest in the national industry, and the profitability of road production is strong.

The reconstruction and expansion of the company has been completed one after another, and a number of broken roads have been opened, boosting the growth of traffic 1) the "four to eight" of the whole line of he-Ning Expressway is completed at the end of 2022, and the "four to eight" of Xuanguang Expressway is expected to be completed in 2024, and the traffic flow is expected to double. 2) the "broken Road" of the Anhui section of the Ningxuan-Hangzhou Expressway will be opened by the end of 2022, and the "broken Road" of the Anhui section of the Yuewu Expressway is expected to be opened within 2023, which is expected to turn losses into profits. 3) the second phase of reconstruction and expansion of he'an Expressway adjacent to Gaojie Expressway has been completed; Anqing Bridge reduces tolls for local minibuses in the form of financial subsidies, while the adjacent Wuyue Expressway is expected to be completed in 2023, which is expected to boost traffic growth. 4) the Liuwu Expressway to be acquired by the company follows the he Liuye Expressway, which was reformed and expanded in December 2022, and the traffic flow is in a period of rapid growth.

The dividend rate of the company was raised to 75%, the highest dividend level for highway listed companies from 2023 to 2025, to 75% from 2021 to 2022, the company's dividend per share was 0.55 yuan per share, and the historical dividend return was at the industry-leading level. Assuming that the company's Liuwu Expressway acquisition draft is carried out, the dividend yields of A shares and Hong Kong shares in 2023-2025 are expected to be 7.59%, 8.40% and 9.28%, 10.67%, 11.80% and 13.03%, respectively. (closing price data as of July 21, 2023) Investment recommendations

It is estimated that the operating income from 2023 to 2025 (excluding the income during the construction period of the Xuan-Guang Expressway PPP project) is 4.951 billion yuan, 5.413 billion yuan and 5.792 billion yuan, and the net profit attributed to the parent company is 1.911 billion yuan, 2.171 billion yuan and 2.421 billion yuan. With reference to the valuation level of 9 times the valuation of PE and peer PE at the bottom of the history of the company's A shares, based on the projected net profit of 2025 (after the completion of the reconstruction and expansion of Xuanguang Expressway in 2025, the company's profit level is relatively stable), the target price of A shares is 13.13 yuan per share; with reference to the valuation level of PE and peer PE at the bottom of the history of the company's Hong Kong shares, the target price of corresponding Hong Kong shares is HK $11.12 per share.

Risk hint

1) the risk of traffic flow change caused by macroeconomic cycle fluctuations; 2) the risk of failure in the acquisition of Liuwu Expressway; 3) the risk of changes in the surrounding regional traffic network and urban planning; 4) the change of charging policy; 5) the risk of land use policy.