Core idea: Q3 net profit exceeds our expectations and benefits from travel recovery

Shenzhen Expressway released three quarterly reports that Q1-Q3 realized revenue of 6.371 billion yuan (yoy-4.1%) and net profit of 1.539 billion yuan (yoy-23.8%) in 2023. Among them, Q3 realized a net profit of 610 million yuan (yoy-47.9%,qoq+25.3%), which was higher than we expected (576 million yuan). Last year, Q3 produced an investment income of 921 million yuan on the reduction of joint land investment, resulting in a higher net profit base. Q3 deducted non-net profit increased by 19.7% compared with the same period last year, mainly due to the release of self-driving demand and low performance base. From a sub-business point of view, road deduction non-income and organic waste operating income continue the growth trend; wind power revenue declined. Considering the further release of travel demand, we raised the forecast for the net profit of homecoming in 2023-24-25 from 1.4% to 23.5 / 2.72 billion yuan. The company plans to increase A shares and raise funds for the construction of the third phase of the outer ring. Our model does not reflect this matter yet. Based on the segment valuation method, we give the target price of 600548 CH/548 HK RMB10.97 / HKD9.70 (previous value: RMB10.22 / HKD8.32). Maintain "buy".

Q3 non-toll deduction income significantly improved compared with the same period last year

Q3 toll / wind power generation / organic waste disposal revenue reached 150 million yuan, accounting for about 64 percent of the total revenue. Among them, Q3 toll revenue increased by 2.0% year-on-year, excluding Wuhuang Expressway (due at the end of 22), increased by 10.3% year-on-year, mainly due to: 1) travel recovery, the company's bus traffic accounted for a relatively high; 2) low base. According to the items, 1) the toll of the outer ring highway 23Q3 increased by 26% compared with the same period in 21 years, mainly because the traffic flow of the whole line was increased by the opening of the second phase of the outer ring (at the beginning of 22); 2) the toll of the Qinglian highway 23Q3 decreased by 23% compared with the same period of 21 years, mainly because of the diversion effect caused by the opening of the Guanglian highway (at the end of 21 years); 3) the toll of the machine-load highway 23Q3 decreased by 5.4% compared with the same period in 21 years, which was affected by the diversion of the outer ring highway. 4) the fares for other projects (excluding Wuhuang) have been restored to the level of the same period in 21 years as a whole.

The operating income of wind power declined, while the operating income of solid waste increased compared with the same period last year.

Q3 wind power revenue fell 14 per cent year-on-year. Q3 organic waste disposal revenue increased by 7% compared with the same period last year, continuing the 1H growth trend, mainly due to: 1) the recovery of restaurant food, promoting the increase of kitchen waste collection and transportation; 2) the contribution increase of new projects put into production. The company's Q3 financial expenses decreased by 28% compared with the same period last year, mainly due to large exchange losses in the same period last year, resulting in a higher base of financial expenses. The net profit of Chongqing Water Affairs / Sanfeng Environment Q3 under Delun Environment changed by 2.4% compared with the same period last year. Subsidiary bay area development Q3 homing net profit increased by 132% year-on-year (restated later), mainly due to travel recovery and low base.

The company plans to implement A-share fixed increase, and plans to issue high-speed public offering REIT company to implement A-share fixed increase, the number of shares issued shall not exceed 30% of the total share capital, and the fund-raising will not exceed 6.5 billion yuan, mainly for the construction of the third phase of the outer ring (7Univer 15 announcement). The company plans to declare and issue a public offering REIT with Yichang Expressway (8 / 10 / 19 announcement). The company's highway and large environmental protection business are in a period of expansion, and the capital expenditure is still heavy in the future. Both equity and REIT financing help to consolidate the company's main business and control debt risk.

Risk hint: the growth rate of traffic flow is lower than expected, the progress of environmental protection projects and road property acquisitions is not as expected, the capital expenditure is higher than expected, and the charging standard is reduced.