Incidents:

In 2023, the company achieved annual revenue of 15.192 billion yuan, a year-on-year increase of 14.61%, and realized net profit of 4.413 billion yuan, an increase of 18.51% over the previous year. Among them, in the fourth quarter of 2023, the company achieved revenue of 3,583 billion yuan, a year-on-year decrease of 4.98%, and realized net profit of 377 million yuan to mother, a year-on-year decrease of 38.79%.

In 2023, the company paid a cash dividend of 0.47 yuan per share, with a dividend rate of about 53.65%.

Toll road business achieved steady growth

In 2023, the company achieved toll revenue of 9.511 billion yuan, an increase of 29.88% over the previous year. Among them, the main road company, the Shanghai-Nanjing Expressway, achieved revenue of 5.251 billion yuan, an increase of 22.66% over the previous year. Affected by centralized road surface maintenance and refined traffic security facilities, the gross margin of the Shanghai-Nanjing Expressway fell 4.4 pct year on year. The company achieved revenue of 1,844 billion yuan from supporting services, an increase of 64.05% over the previous year, mainly due to an increase in oil sales; the real estate sales business achieved revenue of 475 million yuan, a year-on-year decrease of 29.55%, mainly due to the subsidiary's real estate project delivery scale being smaller than the same period; the electricity sales business achieved revenue of 642 million yuan, a decrease of 1.46% year on year, mainly due to weather factors such as falling wind speed, and a decrease in feed-in power for the Spruce Qingneng offshore wind power project.

Profitability improved year over year, and net interest rate to mother increased by about 1%

The company's gross margin in 2023 was 36.94%, up 3.64pct year-on-year. Management expenses/financial expenses/sales expenses changed by -3.41%/2.94%/-30.86% respectively. The increase in financial expenses was mainly due to exchange rate fluctuations, which confirmed a year-on-year increase in exchange losses. Investment income was confirmed at 1,465 billion yuan, a year-on-year decrease of 21.59%. It was mainly due to the transfer of 100% of the shares of the Shanghai, Jiangsu and Zhejiang companies by the Yanjiang Company in 2022, leading to a relatively high base for the same period. In 2023, the company's net profit margin was 29.05%, up 0.96pct year-on-year.

The construction project is progressing steadily. The acquisition of the main business scale of the Suxi-Changnan Expressway Expansion Project is currently progressing steadily. It is expected to be completed and opened to traffic by the end of June 2025 and 2026, respectively. The Shanghai-Nanjing Expressway renovation and expansion project and the Xitai project are in early preparations. The company plans to acquire 65% of the shares in the Suxi-Changnan Expressway, with a transaction consideration of about 5.20 billion yuan. This acquisition will help the company improve the layout of the Sunan Road Network and take on the overflow of traffic during the later renovation and expansion of the Shanghai-Nanjing Expressway.

Profit Forecasts, Valuations, and Ratings

The company's revenue for 2024-2026 is estimated to be 161.55/ 171.00/18.112 billion yuan, respectively, with year-on-year growth rates of 6.34%/5.85%/5.92%; net profit to mother of 48.81/53.25/5.823 billion yuan, respectively, with year-on-year growth rates of 10.60%/9.09%/9.37%; EPS of 0.97/1.06/1.16 yuan respectively.

The company's road production location advantages are obvious, and profitability is strong. The company's long-term maintenance of a high dividend policy also shows confidence in operating performance and the importance attached to shareholder returns. Referring to comparable company valuations, 14X PE was given in 2024, corresponding to a target price of 13.58 yuan, maintaining the “increase” rating.

Risk warning: Traffic growth falls short of expectations; changes in charging policies.