3Q23 performance is in line with our expectations

The company announced 3Q23 results: revenue 1.35 billion yuan, year-on-year growth of 9.5% (retroactive adjustment), month-on-month growth of 13.6%; return to the mother net profit of 470 million yuan, year-on-year increase of 12.8% (retroactive adjustment), in line with our expectations.

In the first three quarters, the company achieved an income of 3.69 billion yuan, an increase of 12.2% over the same period last year (after retroactive adjustment), and a net profit of 1.36 billion yuan, an increase of 13.9% over the same period last year (after retroactive adjustment). Among them, the company prepares 68.79 million yuan for the full impairment of the maintenance expenditure of Guangfo Company.

Trend of development

During the summer peak season, the traffic volume increased rapidly, and the profit achieved double-digit growth. The company's core road production is located in the Pearl River Delta region, superior location conditions, a high proportion of passenger cars, the third quarter benefited from the summer peak season, revenue and profit achieved double-digit growth compared with the same period last year. According to traffic planning research data, highway traffic volume increased by 16%, 25% and 26% in July / August / September compared with the same period last year, of which passenger traffic recovered significantly, with an increase of 22%, 34% and 38% in the same period last year. The rapid growth of traffic volume in the third quarter promoted the company's performance to achieve double-digit growth.

It is proposed to increase funding for the Yuezhao reconstruction and expansion project and continue to develop the main highway industry. According to the company announcement, the company intends to increase capital to Yuezhao Company to invest in the reconstruction and expansion project of the Guangdong Hengjiang-Ma'an section of the G80 Guangzhou-Kunming Expressway, with a capital contribution of about 810 million yuan and a capital IRR of 5.23%, which is 4.2% higher than the current long-term loan interest rate, and the project has a certain profitability. We believe that the company continues to expand the main business of expressways, in addition to the Yuezhao project, the reconstruction and expansion projects of the Guangzhu section of Beijing-Zhuhai Expressway, the Jiangzhong Expressway and Shenzhen Huiyan Expressway, which are the core road products, are also in progress, and the company's road products are expected to extend the toll period and ensure the steady growth of long-term toll revenue.

The proportion of dividend is in the forefront of the industry, and the defense value is outstanding. According to the announcement of the "shareholder return Plan for the next three years (2021-2023)" issued by the company, the dividend ratio in 2021-2023 is not less than 70%, which is one of the companies with the highest dividend ratio of highway listed companies at present. Based on current prices, we expect the company to have a dividend yield of 6.7% and 7.1% in 2024, which is worth defending.

Profit forecast and valuation

Keep profit forecasts for 2023 and 2024 unchanged. The current A-share price corresponds to a price-to-earnings ratio of 10.4 times 2024 / 9.8 times earnings for 2023 Universe. To maintain an outperform industry rating, taking into account the strong certainty of the company's performance and the increased market recognition of the target of high dividends, we raised the target price by 8.8% to 9.6 yuan, corresponding to 12.0 times 2023 price-to-earnings ratio and 11.3 times 2024 price-to-earnings ratio. There is 15.0% upside compared to the current stock price.

Risk

The economic growth rate is not as fast as expected, and the progress of reconstruction and expansion is not as expected.