Q3 net profit decreased by about 15% compared with Q2, and the three-quarter report was lower than we expected. Shandong Expressway released three-quarter report. Q1-Q3 achieved revenue of 15.4 billion yuan (yoy+27.45%) in 2023, and home net profit of 2.584 billion yuan (yoy+13.44%), lower than we expected (2.75 billion yuan). Among them, Q3 realized a net profit of 816 million yuan (yoy+10.64%,qoq-14.69%). Q3 net profit increased compared with the same period last year, mainly due to: 1) the release of summer travel demand; 2) the return of vehicles after the reconstruction and expansion of the Jing-Tai-Ji-Tai section. Q3 net profit has decreased compared with the previous month, or it may be due to: 1) the loss of 47 million yuan (non-economic loss) in the disposal of the guardrail of the reconstruction and expansion project of Tijia; 2) the poor performance of Yikang Technology. Considering the diversion impact of the Ji-Qing Middle Line (the full line was opened to traffic at the end of September, 23) and the lower-than-expected performance of Yikang Technology, we adjusted the annual return net profit forecast on 2023-24-25 to 34.1 hectare 3.606 billion yuan (the previous value is 363pm 379pm). Based on 11.6x 2023PE (a 10% premium on the market capitalization weighting center 10.5x of comparable companies, reflecting the advantage of the company's high dividend rate; the previous value is 11.3x), we adjust the target price to 7.15 yuan (the previous value is 7.47 yuan). Maintain "increasing holdings".

Q3 road and bridge business is strong, Beijing-Taiwan Expressway and the second Yellow River Bridge are the bright spots of the company's Q3 total revenue increased by 40% year-on-year to 5.7 billion yuan. Among them, Q3 toll revenue increased 10% year-on-year to 2.9 billion yuan (excluding taxes), an increase of 14% compared with Q2. In terms of road sections, thanks to the continuous return of vehicles after the reconstruction and expansion of the Ji-Tai section of the Beijing-Taiwan Expressway and the second Yellow River Bridge, the toll income of Q3 of the Beijing-Taiwan Expressway and the second Yellow River Bridge increased by 50% over the same period last year. The reconstruction and expansion of Ji-Shan Expressway was fully carried out, and the main line was half closed since 2023-2-16, resulting in a 57% decrease in Q3 revenue compared with the same period last year. Other sections of Q3 toll revenue increased by 12x10% compared with the same period in 22 / 21, significantly better than in the first half of the year (23H1 toll revenue increased by 8.0% over the same period in 22 / 21), and Q3 road and bridge business was significantly better than in the first half of the year. Q3 buses may benefit from the release of demand for self-driving by residents in the summer, and trucks may pick up from the bottom as profits of industrial enterprises improve.

The net profit of Q3 rail transit increased significantly, and the investment income maintained a steady growth. The rail transit group (51% owned by Shandong Expressway) achieved a net profit of 145 million yuan (up 56% year-on-year and 49% month-on-month growth), mainly due to the increase in traffic volume connected to the Huangda railway. The company's Q3 achieved a total gross profit of 1.81 billion yuan, up 8.4% from the same period last year and 4.3% lower than Q2. Considering that the profit of Q3 road and bridge business and rail transit group is stronger than that of rail transit group, the company's Q3 gross profit is lower than Q2 or due to the poor performance of Yikang technology. The company's Q3 investment income rose 12% year-on-year to 323 million yuan, while Q1-Q3 investment income increased 8.8% to 971 million yuan, contributing 24% and 23% of pre-tax profits, respectively.

The section from Weifang to Qingdao of the Ji-Qing Middle Line was opened in December 22, and the toll income from January to September in 23 years has little impact on the Jiqing Expressway. However, the Jinan-Weifang section of the Ji-Qing Middle Route was opened in September 23, and the full line of the project may divert vehicles on the Jiqing North Line from Q4. The reconstruction and expansion of Ji-Shan Expressway was partially closed (February-December 23), resulting in damage to traffic flow this year, but is expected to continue to improve in 2024-2025.

Risk tips: residents' willingness to travel is not good, road network diversion is higher than expected, capital expenditure is higher than expected, asset impairment risk.