Core point: the three-quarter report is in line with expectations and continues to benefit from the recovery of travel. Guangdong Expressway A released three-quarter report, Q1-Q3 achieved revenue of 3.688 billion yuan (yoy+12.16%) in 2023; home net profit / deduction of non-net profit 1.404 billion yuan (yoy+13.87/21.15%), basically in line with our expectations (1.389 billion yuan). Among them, the net profit of Q3 home reached 471 million yuan (yoy+12.78%), benefiting from travel recovery and low base. We estimate that the annual return net profit of the company in 2023-24-25 is 1.652 billion yuan (previous value: 1.652 million). Considering that the number of toll-free days during the Spring Festival in 2024 will be increased by 2 days, we will lower our forecast of 2024E by 0.7%. Our target price of 10.12 yuan (the previous value is 10.14 yuan) is the average calculated by DCF and PE, and DCF is still based on WACC6.12%,PE based on 11.3x 2024e PE (a 25% premium rate is given on the Wind consensus expectation hub 9.01x to reflect the advantage of high dividend; the previous value is 11.2x). The company promises a dividend rate of 70% in 2021-2023, based on which we expect the dividend yield to be 6.6%. Maintain "buy".

The increase of traffic flow superimposed a low base, driving the profit growth of 3Q

The company's Q3 revenue increased by 9% compared with the same period last year, mainly due to: 1) the release of demand for self-driving trips in the summer, and the company's bus revenue accounted for a relatively high proportion; 2) the company was affected by the epidemic in the same period last year, with a low base. In September this year, tolls were exempted for two days due to the Mid-Autumn Festival National Day holiday (9.29-10.6), which reduced the number of days receivable in September by 6.7% compared with the same period last year. We expect the income growth in July-August to be significantly better than that in September. According to the Planning Institute of the Ministry of Communications, from July to September, the cross-section traffic volume of high-speed passenger cars / trucks on the national trunk line increased by 31% compared with the same period last year, an increase of 24.1% over the same period in 19 years, significantly better than the first half of the year. In the first half of the year, passenger cars increased by 12% compared with 1H19, while trucks decreased slightly by 2.7%. In July-September, the traffic volume of urban groups in the Guangdong-Hong Kong-Australia Bay area increased by 4% year-on-year and 3% over the same period in 19 years.

Gross profit and cash flow of business activities maintain steady growth

The company's Q3 operating costs increased by 5% compared with the same period last year, or depreciation expenses increased due to the increase in traffic flow, although the depreciation of road assets in the northern section of Fokai was completed. The company's Q3 gross profit increased by 12% year-on-year; cash flow from operating activities increased by 4% year-on-year. The company's Q3 financial expenses are 11% lower than the same period last year, or benefit from lower interest rates.

The company's Q3 investment income increased by 22% compared with the same period last year, mainly due to the participation in highways benefiting from a travel recovery and a low base.

Q3 company continued to calculate the impairment loss of 23 million yuan on Guangfo highway cushion maintenance expenditure, which was not included in the same period last year, which was a small drag on net profit. To sum up, the company's Q3 home net profit increased by 13% compared with the same period last year.

The proposed reconstruction and expansion of the core road products will continue to benefit from the average remaining toll period of about 13.7 years (at the end of 2022), which is expected to be extended through reconstruction and expansion. In the holding road production, the Fokai Expressway has completed the reconstruction and expansion, the Beijing-Zhuhai Expressway Guangzhu Section is being renovated and expanded, and the Guanghui Expressway has carried out preliminary research on the reconstruction and expansion. In the course of participating in the road production, Huiyan Expressway has completed the reconstruction and expansion, Jiangzhong Expressway is being renovated and expanded, and Guangzhao Expressway has carried out preliminary research on reconstruction and expansion. According to the toll standard of Guangdong Province, the toll standard is expected to increase by 33% after the four-lane section is rebuilt and expanded to six or more lanes. In the long run, the company will benefit from the interconnection in the Greater Bay area. "Australian cars going northward" and "Hong Kong cars northward" are expected to bring about an increase in traffic flow.

Risk tips: reduced willingness to travel, higher-than-expected changes in road network, higher-than-expected capital expenditure and lower rates