The company released its 2023 annual report: 1) In 2023, the company achieved revenue of 15.192 billion yuan, +14.61% year over year; realized net profit of 4.413 billion yuan, +18.51% year over year; realized deducted non-net profit of 4.175 billion yuan, +21.93% year over year. Achieved a gross profit margin of 36.9%, +3.6pct year over year; achieved a net profit margin of 29.05% to mother, +1pct year over year.

2) On a quarterly basis: 2023Q1-4, the company achieved revenue of 36.3, 35.1, 44.7, and 3.58 billion yuan, respectively; realized net profit of 12.3, 12.6, 15.6, and 380 million yuan, +46.1%, +26.9%, +21.4%, and -38.8% year-on-year; realized deducted non-net profit of 11.8, 11.7, 14.2, and 4.1 billion yuan, respectively, +47%, +41.4%, +6%, and -10.7% YoY. 3) Profit distribution plan: A cash dividend of 0.47 yuan is distributed per share. A total cash dividend of 2,368 billion yuan is proposed, with a cash dividend ratio of 53.65%.

The main toll road business has been recovering steadily, and the traffic and revenue of major road production vehicles are superior to the same period in 2019. In 2023, the company achieved toll road business revenue of 9.511 billion yuan, +29.88% year-on-year, and a gross profit margin of 54.52%, an increase of 0.56 percentage points over the previous year. The Shanghai-Nanjing Expressway achieved revenue of 5.25 billion yuan, surpassing 5.231 billion yuan in 2019, the highest revenue value; the share of bus traffic structure increased, with bus traffic increasing by 50.68% year on year, truck traffic remained generally flat, accounting for 81.9% of passenger traffic, up 7 percentage points year on year; average daily toll revenue increased 22.7% year on year. Ningchang Expressway and Zhenli Expressway achieved operating revenue of 1.37 billion yuan, surpassing 2019, with a gross profit margin of 62.9%, an increase of 4.1 percentage points over the previous year. Among them, the average daily traffic on the Ningchang Expressway increased 34.5% year on year, and the average daily traffic on the Zhenli Expressway increased 32% year on year. Wufengshan Bridge achieved revenue of 966 million yuan. The average daily revenue increased 146.1% year on year, bus traffic increased 172.3% year on year, and truck traffic increased 123.8% year on year. Guangjing Expressway and Xicheng Expressway achieved revenue of 919 million yuan, with a gross profit margin of 67.7%, up 14.9 percentage points year on year. Among them, bus traffic on the Xicheng Expressway increased 62.7% year on year, truck traffic increased 13.24% year on year, average daily revenue increased 36.7% year on year, bus traffic on the Guangjing Expressway increased 59.3% year on year, truck traffic increased 11.4% year on year, and average daily revenue increased 31.1% year on year. The Xiyi Expressway and the Wuxi Huan-Taihu Expressway achieved operating income of 637 million yuan, a gross profit margin of 35.2%, a year-on-year decrease of 6.1 percentage points. Among them, bus traffic on the Xiyi Expressway increased 60.3% year on year, truck traffic increased 11.5% year on year, average daily revenue increased 33.4% year on year, bus traffic of Wuxi Huan-Taihu Company increased 105.2% year on year, truck traffic decreased by 0.74% year on year, and average daily revenue increased 58.3% year on year.

The company's high-quality Yangtze River Delta Expressway assets should be given more attention. The company's main road products business area is located in the most dynamic and developed Yangtze River Delta region in China. The road and bridge projects it owns or participates in are the core components of the two important industrial corridors along the southern Jiangsu River and along the Shanghai-Nanjing industrial belt. The mature and developed location economy has made the company's highway business model mature and stable. Cash dividends per share remained stable for 5 consecutive years from 2018 to 2022. The amount of dividends per share has not been reduced since listing. It is planned to slightly increase the dividend amount per share to 0.47 yuan in 2023.

Investment advice: We raised our 24-25 performance forecast, which is 46.6 billion yuan and 5.04 billion yuan, which is expected to achieve net profit of 47.7 billion yuan, 53, and 5.71 billion yuan in 24-26, corresponding EPS of 0.95, 1.05 and 1.13 yuan respectively in 2024-2026, and PE is 12, 11, and 10 times, respectively. It is expected to maintain a dividend ratio of 0.47 yuan per share in 24-25. The corresponding dividend rate under the current stock price is 4.2%. We set the price with an expected dividend rate of 3.5% for 2024. The target price is $13.4, which is expected to be 20% more space than the current price, maintaining the “recommended” rating.

Risk warning: The recovery in bus and truck traffic falls short of expectations, and investment in new road production falls short of expectations, etc.