Yue Expressway An issued a results announcement for the third quarter of 2023. In the first three quarters, the total operating income was 3.69 billion yuan, an increase of 12.2% over the same period last year. The net profit was 1.36 billion yuan, an increase of 13.9% over the same period last year, of which the operating income was 1.35 billion yuan in the third quarter, an increase of 9.5% over the same period last year. The net profit reached 470 million yuan, an increase of 12.8% over the same period last year.

Road traffic continues to repair during the peak travel season, and Q3 main business income performance is good. When the summer travel season entered in the third quarter, the backlog of self-driving travel demand was released. Specifically, according to the Ministry of Communications, highway vehicle traffic volume in July, August and September was 26% higher than that in July, August and September respectively compared with the same period last year, and the month-on-month comparison was + 12%. The summer vacation in September was basically over, and the traffic volume decreased in September. The number of passenger cars with 9 seats or less on expressways in the second quarter increased by about 27% compared with the same period in 2019. It is judged that the volume of high-speed passenger cars in the third quarter continues to grow better than that in the same period before the epidemic. From July to September, the company's main holding road property toll income was about 1.33 billion yuan (Guangfo Expressway has stopped tolling), an increase of 14% month-on-month, and the traffic volume was about 91.2 million vehicles (including Guangfo), an increase of 4.7% month-on-month. Traffic flow and toll income increased steadily in the third quarter compared with the previous quarter.

Q3 gross profit margin continued to grow compared with the previous month, and cash flow remained stable. The operating cost of the company's Q3 was 420 million yuan, an increase of 5.1% over the same period last year, and a gross profit of 930 million yuan, an increase of 11.6% over the same period last year. The gross profit margin was 68.8%, an increase of 1.31pcts over the same period last year, and a month-on-month increase of 0.52pcts. On the expense side, Q3 financial expenses decreased by 11.3% year-on-year, financial expense rate was 4.3%, year-on-year growth of 7pcts, month-on-month growth of 2.1%, Q3 management expenses decreased by 0.5%, management expense rate was 3%, 0.3pcts decreased, and 0.5pcts decreased. In terms of investment income, the investment income of Q3 was 60 million yuan, an increase of 22.5% over the same period last year. In terms of cash flow, the net cash flow generated by Q3 operating activities was 980 million yuan, an increase of 4.2% over the same period last year.

Investment advice. We believe that the company has long benefited from: 1) relying on the high-quality expressways of the major shareholder Transportation Group to increase the opportunities for injection of high-quality assets; 2) the networking effect brought about by regional economic growth and continuous encryption of the highway network in the province. 3) the reconstruction and expansion of core road production has brought about an increase in long-term traffic flow and traffic income. at present, in the holding road production, the Guangzhu section of Beijing-Zhuhai Expressway and Jiangzhong Expressway are in the process of reconstruction and expansion, while Guanghui Expressway and Guang-Zhao Expressway are in the research stage of reconstruction and expansion. Follow-up is expected to bring increment. We estimate that the return net profit of the company from 2023 to 2025 will be 1.64 billion yuan, 1.78 billion yuan, respectively, corresponding to 23 years PE 10.7x, 24 years PE 9.8x, PB 1.7x, the company's dividend ratio is stable, the dividend yield is attractive, and the "highly recommended" rating is maintained.

Risk hints: the regional economic growth is not as expected, the impact of some road property diversion under the road network planning is greater than expected, and the change of toll policy is greater than expected.