Guangdong Expressway announced results for the third quarter of 2024. In 24Q3, it achieved operating income of 1.27 billion yuan, -5.7% year on year, realized net profit of 0.5 billion yuan to mother, +6.5% year on year, and net profit of 0.52 billion yuan after deducting non-return to mother net profit of 0.52 billion yuan, or +5.2% year over year.

Due to changes in the road network structure, toll revenue from the main controlled road products declined in Q3. The company held road production Q3 toll revenue year-on-year, of which: 1) Guanghui Expressway toll revenue declined year-on-year due to the opening and diversion of the Guanghui Expressway, Guanghui Intercity Railway, Meilong High Speed Rail, Huilong High Speed Rail and Guanfan Expressway; Q3 toll revenue -7.7%/-46.84 million; 2) Guangzhou-Zhudong was diverted after the opening of the Shenzhen-China Expressway and the Zhongkai Expressway, which led to a year-on-year decline in toll revenue. Q3 toll revenue was -9.4% /-29.31 million; 3) Fokai Expressway Q3 toll revenue declined year-on-year Fee revenue -1.8%/-7.54 million.

Costs and financial expenses have all been reduced. The 24Q3 company's operating costs were 0.4 billion yuan, -4.9%/-20.64 million, or depreciation and maintenance costs were reduced mainly due to reduced vehicle traffic, achieving gross profit of 0.87 billion yuan. The gross margin was 68.6%, down 0.3 pcts year on year, up 0.8 pcts from the previous year. In terms of expenses, due to falling interest rates and debt replacement, the 24Q3 company's financial expenses were 0.03 billion yuan, -24.1%/-9.9 million compared to the same period; management expenses were 0.04 billion yuan, +11% compared to the same period last year.

The extension of Guangle's dividend payment was confirmed, and investment income increased significantly in Q3. 24Q3's investment income was 0.103 billion yuan, +78.2% /+45.26 million, of which investment income in joint ventures and joint ventures was 0.06 billion yuan, +10% /+5.52 million over the same period. The significant increase in investment income was mainly due to the delay in confirmation of Guangle Express dividends in Q3 (confirmed in Q2 last year). The revenue from participating in other road products was -2.6% year-on-year. Among them, the Jiangzhong Expressway renovation and expansion opened to traffic at the end of June 2024. In terms of cash flow, 24Q3's operating cash flow was 0.93 billion yuan, or -5.2% year-on-year. In terms of cash flow, the 24Q3 company's operating cash flow was 0.93 billion yuan, or -5.2% year-on-year, mainly due to the construction subsidy for the Guangzhou-Zhujiang New City South Interchange during the same period last year.

Investment advice. The company continues to benefit from regional economic growth and the expansion of core road production leading to long-term traffic and traffic revenue growth. Currently participating in the holding road production, the Guangzhou-Zhuhai section of the Beijing-Zhuhai Expressway and the Guangzhao Expressway are being renovated and expanded. The Guanghui Expressway renovation and expansion projects are actively being prepared, and are expected to bring about increases in the future. Considering that the impact of the Guangzhou-Zhudong diversion was less than expected and the cost control of the main business, we slightly raised our profit forecast. We expect the company's net profit to be 1.58/1.58/1.6 billion yuan in 2024-2026, corresponding to a 24-year PE of 14.8x and a PB of 2.3x. The company's dividend ratio is stable, the dividend ratio is attractive, and it maintains a “highly recommended” rating.

Risk warning: The economic growth of the region falls short of expectations, the impact of the diversion of some road production is greater than expected under road network planning, and changes in toll policies.