On October 27, 2023, Shandong Expressway released its report for the third quarter of 2023:

In the first three quarters of 2023, the company achieved operating income of 15.407 billion yuan, up 27.45% year on year; net profit of 2,584 billion yuan, up 13.44% year on year; net cash flow from operating activities was 4.714 billion yuan, up 0.13% year on year; basic earnings per share was 0.456 yuan, up 11.76% year on year; and weighted average return on net assets was 7.44%, up 1.08 percentage points year on year.

In the third quarter of 2023, the company achieved operating income of 5.697 billion yuan, a year-on-year increase of 40.34%, an increase of 7.72%; net profit of 816 million yuan, a year-on-year increase of 10.64%, a year-on-year decrease of 14.69%; basic earnings per share of 0.141 yuan, an increase of 10.16% over the previous year; and a weighted average return on net assets of 2.32%, an increase of 0.37 percentage points over the previous year.

The economy is recovering, traffic is rising, and toll revenue is growing steadily. In the first three quarters of 2023, the company achieved toll revenue (including tax) of 8.177 billion yuan, an increase of 9.11% over the previous year, mainly benefiting from macroeconomic recovery and increased traffic flow; among them, the core road production of sections related to the Beijing-Taiwan Expressway achieved toll revenue (including tax) of 1,656 billion yuan (including tax), an increase of 45.51% over the previous year, mainly affected by the opening of the Jitai section of the Beijing-Taiwan Expressway, and the overall traffic capacity and service level of the Shandong section of the Beijing-Taiwan Expressway improved markedly. At the same time, the company promoted the integrated development of transportation and tourism. Relying on the “smooth flow” platform, the company launched special marketing activities such as “smart cultural tourism” 6 times, attracted merchants to open more than 3,000 stores within 3 months, initially estimated that it would divert 17,700 vehicles and increase tolls by 1.06 million yuan.

The contribution of investment and operating profit was highlighted, and rail transit profits increased year over year. 1) While expanding and strengthening the main road and bridge business, the company aims for “high-speed +” investment in the main business chain and actively creates new profit growth points. In the first three quarters of 2023, the company achieved investment income of 971 million yuan, an increase of 8.76% over the previous year; of these, long-term equity investment income calculated by equity law was 681 million yuan, an increase of 13.86% over the previous year; and investment income from transactional financial assets during the holding period was 67 million yuan, an increase of 42.76% over the previous year. 2) In the first three quarters of 2023, Shandong High Speed Rail Transit Group Co., Ltd. achieved revenue of 3.338 billion yuan, an increase of 6.63% year on year; net profit of 327 million yuan, an increase of 22.51% year on year; and completed traffic volume of 79.59 million tons, an increase of 19% over the previous year, higher than the national and provincial freight growth rates of 12 and 7.2 percentage points. Using the Huangda Railway as a breakthrough point for increasing railway traffic, an extension of the line from Longkou Port Station to the departure line was implemented. The capacity to deliver super long trains to Huangda was increased from 5 to 10 pairs per day. By the end of September, it had completed 17.87 million tons of traffic to Huangda, an increase of 30.4% over the previous year.

Construction of renovation and expansion projects accelerated, and continued to make full progress in the fourth quarter. The Beijing-Taiwan Expressway Qiji renovation and expansion project completed an investment of 450 million yuan in the third quarter, exceeding the planned tasks by 17%; the Jihe Expressway renovation and expansion project fully entered the pavement construction stage, completing an investment of 1.24 billion yuan in the third quarter. Looking ahead, the Beijing-Taiwan Expressway Qiji reconstruction and expansion project focuses on control projects such as the Yellow River Special Bridge to ensure the completion of annual investment tasks of 1.74 billion yuan; the Jihe Expressway renovation and expansion project is steadily advancing control projects such as the Daqing River Special Bridge and the Yunju River Special Bridge to ensure the completion of annual investment tasks. The completion of the renovation and expansion project will drive the resilient growth of the company's performance. It is recommended to continue to pay attention to relevant progress.

Profit forecast, valuation and investment rating: The company's core road production location advantages are remarkable, renovation and expansion projects are progressing steadily, and the main business is growing strongly. The company is expected to achieve net profit of 33.46, 35.39, and 3.708 billion yuan respectively in 2023-2025, earnings per share of 0.69, 0.73, and 0.77 yuan respectively. The current stock price is 6.87 yuan. The corresponding PE is 9.9X/9.4X/9.0X respectively, maintaining the “buy” rating.

Risk warning: risk of deterioration of the macroeconomic environment, risk of declining traffic flow, risk of fee policy adjustment, risk of reform and expansion progress falling short of expectations, risk of investment returns falling short of expectations, risk of investment returns falling short of expectations, and risk of untimely data updates in research reports.