Description of the event

Ninghu Expressway disclosed its 2023 annual report: Throughout 2023, Ninghu Expressway achieved operating income of 15.2 billion yuan, an increase of 14.6% over the previous year, and realized net profit of 4.41 billion yuan, an increase of 18.5%; with 2023Q4, the company achieved operating income of 3.58 billion yuan, a year-on-year decrease of -4.98%; realized net profit of 377 million yuan, a year-on-year decrease of 38.8%, mainly due to the transfer of 100% shares of Shanghai, Jiangsu and Zhejiang companies to issue public infrastructure REITs in '22. yuan.

Incident comments

Traffic remained steady, and toll revenue increased high under a low base. 2023Q4's highway toll business revenue was 2.41 billion yuan, up 34.9% year over year, mainly due to the low base due to the exemption of tolls in Q4 2022. In terms of core road products, traffic on the Jiangsu section of the Shanghai-Nanjing Expressway increased 16% year on year, up 5.1% from the same period in 2019, and traffic continued to grow steadily.

Traffic on Ningchang Expressway, Jiangyin Bridge, Sujiahang Expressway, and Yanjiang Expressway increased by 14.2%/32.7%/16.7%/20.3% year-on-year, and most road products maintained more than double digit growth.

Supporting businesses have maintained high growth, and construction and real estate are dragging down revenue. 2023Q4, the company's construction revenue/supporting services/electricity sales/real estate sales/other revenue were 3.4/4.6/1.5/1.6/0.6 billion yuan respectively, with year-on-year changes of -8.6/+1.0/-0.3/-0.4/+ 0.2 billion yuan respectively. Benefiting from the recovery in road network traffic and the cancellation of rent relief policies, revenue from ancillary services increased year-on-year. Real estate delivery projects have slowed, while the company's investment in road and bridge construction projects has declined, leading to a year-on-year decline in real estate sales and construction revenue. The year-on-year decline in electricity sales was mainly affected by weather factors. The decline in wind speed led to a decrease in feed-in electricity for offshore wind power projects. Other revenue increased significantly, mainly benefiting from increased revenue from advertising and hotel services. The decline in construction and real estate revenue in the fourth quarter dragged down revenue. If revenue during the construction period was excluded, the company's auxiliary revenue increased 5.9% year over year.

Investment spending slowed in '23, with plans to increase capital expenditure by $11.1 billion in '24. In 2023, the company's investment expenditure was 2.74 billion yuan, down 64.1% year on year, mainly due to the year-on-year decrease in the company's investment in road and bridge project construction and equity investment; in 2024, the company's planned capital expenditure was 13.86 billion yuan, a sharp increase of 11.12 billion yuan over the previous year, mainly due to the company's additional capital expenditure of 7.8 billion yuan for the Xitai Expressway construction investment project and the acquisition of the first installment of Suxi Changnan Expressway Company. According to the company's current plan, the main sources of capital expenditure for 24 years are bank loans (credit limit of 10 billion dollars), corporate bonds (5 billion dollars), ultra-short loans (8 billion dollars), and medium-term notes (4 billion dollars).

Profit release is stable, DPS increased slightly in 23 years, and dividend certainty. After the epidemic, the company's profit returned to an upward channel, achieving net profit of 4.41 billion yuan for the full year of '23, an increase of 18.5% over the previous year. As road network traffic continues to recover, the company's profit is expected to continue to be released. Furthermore, the company actively lays out high-quality road products and has the potential for long-term growth. At the same time, the company continued its stable dividend policy, slightly increasing DPS to 0.47 yuan/share in '23, corresponding to the current stock price dividend rate of 4.0%. The cost performance ratio of the allocation is still prominent in a low interest rate environment. The company's net profit for 2024-2026 is estimated to be 47.7/51.05/5.36 billion yuan, respectively, and the corresponding PE is 12.3/11.5/10.9 times, maintaining a “buy” rating.

Risk warning

1. Traffic restoration falls short of expectations;

2. The increase in road production traffic fell short of expectations.