Incident: Wantong Express announced its results for the third quarter of 2024. The company's third-quarter revenue was 1.99 billion yuan, down 1.47% year on year; net profit to mother was 0.411 billion yuan, down 19.57% year on year; revenue for the first three quarters was 5.043 billion yuan, up 16.10% year on year; net profit to mother was 1.221 billion yuan, down 9.60% year on year. The results fell slightly short of expectations.

Affected by the Xuanguang renovation and expansion, traffic on the Xuanguang and Guangci expressways has seriously declined. According to the company's three-quarter report, the average daily traffic volume of the Xuanguang Expressway fell 58.79% year-on-year in July-September 2024, and toll revenue fell 67.09% year on year; in July-September 2024, the average daily traffic on the Guangci Expressway fell 57.32% year on year, and toll revenue fell 63.37% year on year. The renovation and expansion of Xuanguang is expected to be completed by the end of the year, and traffic on Xuanguang, Guangsi, and Anqing Bridge is expected to recover quickly after the opening of traffic.

Q3 Road transport generally showed a steady growth trend. Passenger and freight volume increased slightly, and fixed asset investment in highway construction in Anhui Province increased, providing rich underlying assets for the company's epitaxial mergers and acquisitions. According to Ministry of Transport data, the overall road freight volume was stable in the third quarter of 2024, reaching 10.889 billion tons, an increase of 1.43% over the previous year, and the road passenger traffic volume was 2.973 billion.

Highway investment in Anhui Province has increased. From January to August 2024, the fixed asset investment for highway construction was 94.4 billion yuan, an increase of 4.9% over the previous year.

Taking stock of recent changes in the “Toll Road Administration Regulations” relating to toll periods for operating expressways, the overall trend reflects the trend of relaxation of franchise term agreements on the policy side. Currently, the road industry renovation and expansion of the company's participation in the Group is ongoing, and the charging period is expected to be extended. The situation is as follows: The Xuanguang Expressway, which is owned by the company, is about to be completed, and it is expected that the entire line will be completed within the year; preliminary work on the high-tier highway renovation and expansion has already begun.

Combined with the company's 2024 three-quarter report, the company's profit forecast was lowered to maintain the “gain” rating: Combined with the company's 2024 three-quarter report, considering that the completion time of the Xuanguang Expressway renovation and expansion lagged behind expectations, the decline in traffic on the Xuanguang Expressway and Guangci Expressway exceeded expectations. At the same time, considering the weak traffic flow of the company's main road products, we lowered our 24-26 main road vehicle traffic assumption. Based on the above assumptions, the company's 2024E-2026E net profit is expected to be 1.636, 1.793, and 1.901 billion yuan (the original 24E-26E profit forecast was 1.75, 1.896, 2.026 billion yuan), with year-on-year increases of -1.4%, 9.6%, and 6.0%, respectively, and the corresponding PE is 14/13/12 times, respectively. The main business of the Ninghu-Shanghai Expressway is the toll road business, which is comparable to the Wantong Expressway. According to Wind's expectations, the 24-year PE valuation of the Ninghu Expressway is 14x. Assuming that the 24-year dividend ratio of the Ninghu Expressway and the Wantong Expressway is the same as in 23, 53.65% and 60%, respectively, corresponding to the 24-year dividend rate of the Ninghu-Shanghai Expressway, the 24-year dividend rate of the Wantong Expressway is 4.14%. Maintain the “gain” rating of the Wantong Expressway.

Risk warning: Fee standards reduce risk; force majeure; competitive lines cause traffic to shift.