Description of the event

The Ninghu-Shanghai Expressway disclosed its 2024 quarterly report. 2024Q1 achieved operating revenue of 3.47 billion yuan, a year-on-year decrease of 4.3%; realized net profit of 1,247 billion yuan, an increase of 1.61% over the previous year.

Incident comments

Downstream production revenue increased slightly from a high base, and traffic on the Shanghai-Nanjing Expressway remained flat and declined slightly. 2024Q1's highway toll business revenue was 2.28 billion yuan, up 2.1% year on year: 1) The 23Q1 base effect was obvious. After the beginning of the year, the industry benefited from a one-time surge in passenger and cargo traffic, leading to a high 23Q1 toll revenue base; 2) The 24Q1 Spring Festival holiday was two more days free of tolls compared to 23Q1, which led to a decline in toll revenue; 3) Heavy rain and snow led to a decline in traffic and toll revenue growth. In terms of core road products, traffic on the Jiangsu section of the Shanghai-Nanjing Expressway declined slightly by 0.04% year on year, and traffic continued to grow steadily. Traffic on Ningchang Expressway, Jiangyin Bridge, Sujiahang Expressway, and Yanjiang Expressway increased by 8%/2.7%/0.7%/2.7% year-on-year, and most road production maintained positive growth.

Electricity sales picked up, supporting services increased steadily, and construction and real estate dragged down revenue. 2024Q1, the company's construction revenue/supporting services/electricity sales/real estate sales/other revenue were 4.7/4.2/2.1/0.8/0.3 billion yuan respectively, with year-on-year changes of -1.0/+0.2/+0.3/-0.9/-0.2 billion yuan respectively. Benefiting from the recovery in road network traffic and the launch of a new round of tenders in some service areas, the company achieved steady year-on-year growth in supporting service revenue. 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 increase in electricity sales was mainly affected by weather factors, benefiting from the year-on-year increase in feed-in power for subsidiary offshore wind power projects. Other revenue declined sharply, mainly due to the corresponding decline in factoring business revenue after the subsidiary transferred shares in the factoring company last year. The decline in construction and real estate revenue in the first quarter dragged down revenue. If revenue during the construction period was excluded, the company's auxiliary revenue increased 37.9% year over year.

The 24-year plan is to increase capital expenditure by 11.1 billion, and DPS is expected to remain stable. In 2024, the company plans to spend 13.86 billion yuan on capital, a sharp increase of 11.12 billion yuan over 2013, 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 phase of the Suxi-Changnan Expressway Company of 2.08 billion yuan. 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). Starting in 2024, the company's capital expenditure was relatively large, and the DPS is expected to remain stable, corresponding to the current share price dividend ratio of 4.2%. It is expected that the base effect will begin to subside in Q2, and the company's road product charging business is expected to return to steady growth.

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 4.2%. 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 11.7/10.9/10.4 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.