The company released its quarterly report for 2023: 1) Q3 achieved operating income of 1.752 billion yuan, year-on-year + 31.76%, down 8.51%; net profit of 352 million yuan, + 151.61%, + 13.92%; deduction of non-net profit of 296 million yuan, + 8.72%, an increase of 4.6%; and net interest rate of 20.09%, + 9.57pct. 2) in the first three quarters, the company achieved a cumulative operating income of 5.223 billion yuan, + 18.38% compared with the same period last year, and the net profit returned to the mother was 1.084 billion yuan, + 57.14% over the same period last year, deducting 892 million of non-net profit, + 9.5% from the same period last year. 3) operating data: revenue from vehicle traffic services has increased steadily. The vehicle traffic service income of 23Q3 Company was 937 million yuan, + 2.2% compared with the same period last year, and 9.8 yuan and 855 million yuan respectively compared with Q2, 9.6% and 9.6%, respectively. The cumulative vehicle traffic service income from January to September was 2.77 billion yuan, + 3.32% compared with the same period last year.

We analyze that the performance is growing rapidly compared with the same period last year, the main reasons include: 1) the expense rate decreased significantly during the period, especially the financial expense rate was optimized significantly. Specifically: Q3 sales expense rate 1.08% (year-0.12pct), management expense rate 3.31% (year-0.22pct), R & D expense rate 0.74% (year-on-year + 0.14pct), financial expense rate 5.31% (year-3.34pct), total expense rate decreased 3.54pct during the period. The main reason for the decline in financial expenses is that corporate bonds 13 Gan Yue MTN3 (interest rate 5.35%, size 1.5 billion) and 13 Ganyue 01 (interest rate 5.15%, scale 1.8 billion) expire in March 2023 and April 2023, respectively. The current comprehensive cost of issuing bonds is significantly lower than the previous 10-year corporate bond interest rate. 2) the net income of Q3 fair value change was 42 million yuan, compared with-182 million yuan in the same period last year. This part is mainly caused by the profit and loss of changes in the fair value of transactional financial assets. 3) the company's main business, real estate business and intelligent transportation business all grew steadily compared with the same period last year.

We emphasize that the company is an undervalued dividend asset. 1) the company has core competitive advantage and there is room for continuous improvement in performance. Point 1: the remaining toll life of the core road property is long, and the reconstruction and expansion release the brand-new growth potential.

The remaining toll years of Changjiu Expressway and Changzhang Expressway are more than 26 years and 20 years respectively, and the reconstruction and expansion project of Changtai Expressway Zhangji Section will officially start in 2022. After the reconstruction and expansion of Changjiu Expressway, the income of Changjiu Expressway has been expanded. After the completion of Changtai Expressway Reconstruction and expansion, the north-south passages of Jiangxi Province will have eight lanes. The improvement of traffic efficiency will help to give further play to the effect of road network connectivity. Point 2: we believe that there is still clear room for improvement in financial expenses. With the maturity of the company's past several high-interest-rate bonds, financial expenses will be significantly optimized. 14Ganyue 02 with a scale of 2.3 billion yuan in 2024 (with an interest rate of 6.09%) will expire, while the interest rate on the company's recent ultra-short-term financing bonds continues to fall, which will lead to continuous optimization of financial expenses. Look at 3:22 company dividend ratio in the highway industry is low, but we think that combined with the background of regulators advocating dividends, as well as the company to promote the construction of modern governance system, there is a certain space and potential for improvement in the future.

Investment advice: 1) profit forecast: based on fair value changes and traffic revenue expectations, we slightly raise the company's profit forecast for 2023-25 to the expected return net profit of 12, 13 and 1.41 billion respectively (the original forecast is 11.5,12.9 and 1.39 billion), the corresponding EPS is 0.52,0.56 and 0.6 yuan respectively, and the corresponding PE is 8.0,7.1,6.6 times respectively. 2) Target price: the company's current PB is less than 0.60 times, which is significantly lower than the industry average (1.3times for companies with a market capitalization of more than 10 billion), but we think that the company's road products are of high quality and have potential, and have room for market capitalization repair from the perspective of special valuation. Based on the fact that the gross profit level of the core road products is not weaker than that of the head enterprises, we give the company 11 times the expected net profit in 2023, corresponding to the target market capitalization of 13.3 billion. The target price is 5.68 yuan, which is expected to be 37% more than the current price, maintaining the "push" rating.

Risk hint: the progress and effect of reconstruction and expansion are not as expected, and the growth rate of traffic flow is not as expected.