Key points of investment:

The country's leading supplier of intelligent transportation platform solutions for expressways and urban transportation. The company's main business is (1) smart traffic electronic charging business using ETC as the carrier, including ETC distribution and sales, electronic toll service business, etc.; focusing on expanding the construction and operation of expressways and urban traffic toll collection and management systems; (2) smart traffic operation management system business using cloud technology as a platform, mainly including system software development, comprehensive solutions and system technology services for smart traffic operation management; (3) smart transportation derivative business, mainly using “ETC+” as the core to develop ecological scenarios, integrating vehicle refueling, road area economy, vehicle maintenance and other vehicles Live and develop ETC ecosystem business.

The only authorized ETC issuer in Jiangsu Province, the controlling shareholder is Jiangsu Transportation Holdings. The company's smart transportation electronic billing business uses ETC as the carrier to carry out ETC distribution and sales and electronic billing services. The company is the only authorized ETC issuer in Jiangsu Province. In 2023, the company developed 2.0679 million ETC users, accounting for 10.17% of the number distributed nationwide.

The smart transportation operation management system business continues to be deeply involved in cloud platforms, and the product range is rich. The company focuses on the three business scenarios of smart traffic command and dispatch, operation services, and comprehensive management. It has formed the three major service themes of “free highway, quality high speed, smart highway”, six major product systems of “scheduling, charging, maintenance, service, integrated management, digital intelligence”, and more than ten digital traffic cloud service products, which are mainly aimed at government agencies related to transportation management, road and bridge enterprises, traffic police and other law enforcement agencies. The company's smart transportation products mainly include a series of cloud control platform products such as scheduling clouds, AI video analysis cloud control platforms, high-speed brain cloud control platforms, state-owned clouds, free flow cloud billing solutions, charging robots, SD-WAN intelligent networking technology services, and digital twin services. Major products and revenue added in 2023: state-owned cloud 11.9 million yuan, high-speed brain cloud control platform 10.36 million yuan, AI video analysis cloud control platform 19.2 million yuan, paid robot 11.2 million yuan, digital twin business 17.84 million yuan.

Performance has grown steadily, and the share of operations management business has increased. In 2023, the company achieved revenue of 0.742 billion yuan, a year-on-year increase of 24%; net profit to mother was 0.191 billion yuan, an increase of 27% year-on-year. In the first quarter of 2024, the company achieved revenue of 0.153 billion yuan, a year-on-year increase of 15%; net profit to mother was 0.045 billion yuan, an increase of 10% year-on-year.

In 2021-2023, smart transportation electronic billing business accounted for 61%, 51%, and 51% of revenue, respectively; traffic operation management business accounted for 37%, 47%, and 46% of revenue, respectively, and the share of operation management business is increasing.

The 2024 equity incentive plan was announced, covering a wide range of employees. On July 2, 2024, the company issued the “2024 Restricted Stock Incentive Plan (Revised Draft)”. The incentive tool adopted is Class I restricted stocks. The number of restricted shares to be granted does not exceed 7.5744 million shares, accounting for about 1.86% of the company's current total share capital of 0.407 billion shares, and the grant price is 9.12 yuan/share. The total number of incentive targets drawn up in the incentive plan was no more than 125, accounting for 13.9% of the company's total number of 899 employees (as of December 31, 2023), covering 120 people including Chairman Wang Mingwen, General Manager Jiang Tao, Deputy General Manager Ren Zhuohua, Deputy General Manager Wang Peng, Deputy General Manager Jiang Haichen, and senior management of the wholly-owned subsidiary. 24-year performance assessment goals: 1. The 2024 earnings per share shall not be less than 0.50 yuan, and not lower than the industry average or 75th quartile value of the target company; 2. The return on net assets in 2024 shall not be less than 7.74%, and not lower than the industry average or the 75th quartile value of the target company; 3. The 2024 cash dividend accounts for no less than 50% of the distributable profit for the year.

According to the “Notice of Resolutions of the 9th Meeting of the 2nd Board of Directors” on July 8, 2024, the company reviewed and passed the “Proposal on Adjusting the 2024 Restricted Stock Incentive Program Incentive List and Amount Granted”. The number of incentive recipients to be granted by the company was adjusted from 125 to 124, and the number of restricted shares to be granted was adjusted from 7.5744 million shares to 7.5238 million shares. According to the company's “Notice on Adjusting the Price of the 2024 Restricted Stock Incentive Plan”, the company implemented and completed the 2023 equity distribution plan (cash payment of 3.00 yuan (tax included) for every 10 shares) on July 4, 2024, and the grant price of the company's 2024 restricted stock incentive plan was adjusted from 9.12 yuan/share to 8.82 yuan/share.

Policies to support and guide the digital transformation and upgrading of highway and waterway transport infrastructure bring opportunities to the times. On April 29, 2024, the Ministry of Finance and the Ministry of Transport issued the “Notice on Supporting and Guiding the Digital Transformation and Upgrading of Highway and Waterway Transport Infrastructure”. The goal is to support about 30 demonstration areas in about 3 years from 2024, build a number of demonstration channels and networks with integrated cable networks, and strive to promote the digital transformation and upgrading of about 85% of busy national highways, 25% of busy ordinary national highways, and about 70% of important national high-grade waterways. Demonstration channel traffic efficiency has been increased by about 20% in terms of smart capacity expansion; emergency response efficiency has been increased by about 30% in terms of safety and efficiency; a number of vehicle road cloud, shipshore cloud application scenarios and key technologies and standards with high promotion value in terms of integrated innovation; and promote the cultivation of a number of new business formats and models such as personalized customization, networked collaboration, and industrial integration in terms of institutional mechanism innovation.

Profit forecasts and investment recommendations. We believe that the actual controller of the company is Jiangsu Transportation Holdings, which has shareholder advantages, is developing smoothly, and is expected to enter a stage of rapid development under the impetus of policies related to vehicle road clouds. Assuming a steady increase in high-speed traffic, we expect the company's smart transportation electronic toll business to grow steadily in recent years, with revenue growth rates of 21%, 21% and 20% in 24-26; with the continuous advancement of the high-speed vehicle cloud pilot project, the company's smart traffic operation management system business is expected to grow rapidly in the next 2 years, giving 24-26 revenue growth rates of 25%, 50%, and 48%; it is expected that the smart transportation derivative business will develop smoothly as the company's innovative business and maintain relatively rapid growth, giving 24-26 revenue growth rates of 40% and 35% and 30%.

We expect the company's revenue for 2024-2026 to be 0.915/1.237/1.669 billion yuan, respectively, net profit to mother of 0.218/0.305/0.414 billion yuan, EPS of 0.54/0.75/1.02 yuan respectively, giving a dynamic PE45-50 times in 2024, and a reasonable value range of 24.15-26.84 yuan for 6 months, giving the first coverage a “superior to the market” rating.

Risk warning. The company's business progress falls short of expectations, and industry policy risks.