Incidents: In H1 2023, the company achieved operating income of 1,935 million yuan, +19.74% year-on-year; realized net profit of 427 million yuan, +44.63% year-on-year. The company plans to pay a mid-term dividend of HK$0.15 per share in 2023, with a dividend rate of 53.8%, equivalent to an interim dividend rate of 3.6% (based on the stock price on August 8, 2023, on the publication date of the interim report).

In the first half of 2023, with the optimization of epidemic prevention and control policies, the strong release of residents' willingness to travel, and the accelerated recovery of traffic traffic, the company's toll revenue increased by more than +20% year-on-year to 136% in the same period in 2019. In 2023 H1, out of 1,935 billion yuan in operating income achieved by the company, road toll revenue/service area and gas station revenue/commissioned road management service revenue/construction service revenue/other toll operating revenue were 1,884 billion yuan/316 billion yuan/013 billion yuan/030 million yuan respectively. Among them, main business road toll revenue increased +20.07% year-on-year from H1 (1,369 billion yuan) in 2022, an increase of more than 20%, has recovered to 136.42% of H1 (1,381 billion yuan) in 2019. The company's travel revenue has achieved significant recovery and growth compared to the previous period, mainly due to the optimization of China's epidemic prevention and control policy since the beginning of 2023 and the accelerated recovery of residents' willingness to travel, which has led to a high increase in traffic on most sections of the company's road.

In the first half of 2023, along with the recovery in traffic, the company's fixed costs may be further reduced compared to before.

In H1 2023, the company achieved operating costs of 841 million yuan, +17.1% over the same period last year. Among them, amortization costs of intangible management rights, employee costs, road and bridge operating expenses, road and bridge maintenance expenses, taxes and surcharges, and other fixed asset depreciation were 636 million yuan/81 million yuan/055 million yuan/047 million yuan/070 million yuan/040 million yuan respectively, year-on-year difference

+16.3%/+9.6%/+31.1%/+22.5%/+20.8%/+89.0% As the company's traffic picked up, variable cost expenses increased, but fixed costs, such as amortization of intangible management rights, as the main component of the company's costs, were reduced even further than before.

The company continues to adhere to the road network layout strategy of “based in the Greater Bay Area+deep cultivation of the Midwest”. The Guangzhou North Second Ring Road renovation and expansion project progressed as scheduled, and the Lanwei Expressway performed well in operating efficiency and met expectations after being acquired. Looking at road production in the Greater Bay Area, in 2023 H1, as the company's core road property, the toll revenue of the Guangzhou North Second Ring Road was 535 million yuan, contributing 28.4% of the company's total toll revenue, +11.0% year-on-year, and is still the company's main source of revenue. Up to now, the “8 to 12” renovation and expansion project of Guangzhou's North Second Ring Road has completed preliminary preparations such as construction drawings, and full construction may begin before the end of 2023. After the renovation and expansion of Guangzhou's North Second Ring Road is completed, road traffic capacity will be further enhanced, and the toll period is expected to be extended for up to 25 years, further providing stable support for the company's road toll revenue.

Looking at Henan Road Products, in H1 2023, the toll revenue of the Lanwei Expressway/Weixu Expressway was 153 million yuan/187 million yuan respectively, up 24.3%/-4.8% from the previous year. It can be seen from this that the company's overall Henan road production continued to show good growth. In particular, in November 2022, after the company completed the acquisition of Lanwei Expressway, road production's operating efficiency performance was excellent, in line with expectations; toll revenue from the Weixu Expressway fell year-on-year, mainly due to the same period in 2022, due to local traffic restrictions. Where the base is higher To.

Looking at road production in Hubei, in 2023, toll revenue for the Yuenan Expressway/Daguangnan Expressway/Han'e Expressway/Han'e Expressway was 351 million yuan/237 million yuan/175 million yuan/137 million yuan respectively, up +13.5%/+19.5%/-6.3%/+20% over the previous year. It can be seen from this that the overall growth performance of the company's Hubei Road Products is also excellent. Considering that road sections such as Han'o, Hancai, and Daguangnan are still in the traffic cultivation period, there is still room for further revenue and profit levels to be released in the future.

The company insisted on optimizing the financing structure and reducing the level of debt. The H1 balance ratio was reduced to 59% in 2023. In H1 2023, the company's balance ratio was 59.03%, down -1.8 pct from 2022 (60.83%) year on year, and the debt ratio level was further reduced. In November 2021, the company issued public REITS “Huaxia Yuexiu High Speed REIT” using Hanxiao Express as its base asset. By injecting assets into the public REITS platform, the company played a role in optimizing the company's asset structure and effectively reducing debt ratios. At the same time, considering that interest rates on financing in mainland China are advantageous, the company has achieved the goal of optimizing the financing structure and reducing financial costs by issuing “panda bonds” on the Shanghai Stock Exchange.

The investment recommendation is that we predict that the company's 2023-2025 EPS will be 0.52 yuan/0.59 yuan/0.72 yuan respectively, corresponding to the 2023-2025 PE of 7.97X/6.98X/5.76X, respectively, and give it a “recommended” rating.

Risks suggest the risks brought about by the repeated COVID-19 pandemic, the risk of traffic not recovering as expected, the risk of changes in road toll policies, and the risk that the progress of renovation and expansion projects falls short of expectations.