The company released its three-quarter report for 2023:1) 2023Q1-3, the company achieved revenue of 11.609 billion yuan, +22.40%; realized net profit of 4,037 billion yuan, +29.84%; and realized net profit of 3.765 billion yuan, +26.98% year-on-year. Achieved gross profit margin of 42.77%, year-on-year +3.36pct; realized net profit margin of 34.77%, year-on-year +1.99pct. 2) On a quarterly basis: In 23Q3, the company achieved revenue of 4.473 billion yuan, -2.96% year-on-year, +27.57% month-on-month in 2023Q2; net profit of 1,555 billion yuan, +21.43% year-on-year, +23.91% over 2023Q2.

The main toll road industry is recovering steadily, and overall traffic volume and revenue are better than the same period in 2021. The 2023Q1-3 toll road business achieved revenue of 7.097 billion yuan, +28.26% over the same period last year. By road section, 2023Q1-3, 1) The Shanghai-Nanjing Expressway achieved traffic volume of 112,400 vehicles per day, +46.18% over the same period in 2022 and +11.10% over the same period in 2021; achieved revenue of 144.742 million yuan/day, +22.47% over the same period in 2022 and +3.27% over the same period in 2021. 2) The Ningchang Expressway achieved traffic volume of 53,800 vehicles per day, +41.68% over the same period in 2022 and +18.16% over the same period in 2021; achieved revenue of 2,791 million yuan/day, +18.62% over the same period in 2022 and +4.64% over the same period in 2021. 3) The Zhenli Expressway achieved traffic volume of 23,500 cars/day, +40.64% over the same period in 2022 and +31.10% over the same period in 2021; achieved revenue of 1,0404,100 yuan/day, +0.97% over the same period in 2022, and +10.40% over the same period in 2021. 4) The Xicheng Expressway achieved traffic volume of 883,000 vehicles per day, +60.41% over the same period in 2022 and +8.50% over the same period in 2021; achieved revenue of 1,7015 million yuan/day, +38.09% over the same period in 2022 and -0.41% over the same period in 2021.

5) The Guangjing Expressway achieved traffic volume of 781,000 vehicles per day, +52.59% over the same period in 2022 and +11.43% over the same period in 2021; achieved revenue of 809 million yuan/day, +28.38% over the same period in 2022, and +3.64% over the same period in 2021.

The company's high-quality Yangtze River Delta Expressway assets should receive more attention. In our in-depth report released in mid-August, we explained that the expressway sector performed better in weak markets, reflecting defensive attributes. From the beginning of 2012 to 2023M7, the Shanghai and Shenzhen 300 Index outperformed 4 times out of 5 declines. Since 2021, the highway sector has maintained continuous positive earnings, with an excess yield of more than 10% compared to the Shanghai and Shenzhen 300, and an excess yield of 26% in 2022.

The company's main road production and operation area is located in the most dynamic and developed Yangtze River Delta region in China. The road and bridge projects it owns or participate in are a core component of the road transport corridors along two important industrial belts in southern Jiangsu and along Shanghai-Nanjing. The mature and developed location economy has made the company's expressway business model mature and stable. The cash dividend per share remained stable for 5 consecutive years from 2018 to 2022, and the amount of dividend per share has not been lowered since listing.

Investment advice: We maintain our previous profit forecast. We expect net profit of 42.4, 46.6, and 5.04 billion yuan in 23-25, corresponding to 2023-2025 EPS of 0.84, 0.92 and 1 yuan, respectively, and PE of 12, 11, 10 times, and a target price of 12 yuan. It is expected to maintain the “recommended” rating by 22% compared to the current price.

Risk warning: Bus and truck traffic recovery falls short of expectations, investment in new road construction falls short of expectations, etc.