Key points of investment

Wantong Expressway: Q3 was the quarter with the greatest impact of Xuanguang renovation and expansion construction. Net profit to the mother was -19.6% in the first three quarters of 2024, and the company achieved operating income of 5.04 billion yuan, +16.1% year over year; net profit to mother was 1.22 billion yuan, compared to -11.1% year on year, mainly due to insufficient effective domestic demand, impact of renovation and expansion, number of bad weather days, road network changes, etc.

In 24Q3, the company achieved operating income of 1.99 billion yuan, or -1.5%. Among them, toll road business revenue was about 1 billion yuan, -5.8% year over year, and construction period revenue was about 0.99 billion yuan, +3.3% year over year; net profit to mother was 0.41 billion yuan, -19.6% year over year, after deducting net profit of 0.41 billion yuan or -14.3% year on year.

Q3 The decline in toll revenue was better than in the first half of the year. Interest expenses fell due to lower interest rates on stock loans, and earnings from changes in fair value dragged down profits

Revenue side: 24Q1-3, company toll revenue (tax included) of 2.94 billion yuan, -7.6% YoY. Among them, in 24Q3, the company's toll revenue (tax included) was 1.02 billion yuan, -5.8% year-on-year, and the decline was less than in the first half of the year. This is mainly due to insufficient effective domestic demand, the impact of renovation and expansion construction, policy relief, changes in the road network, and too many days of bad weather. 1) The core road production, the Hening Expressway, performed relatively steadily. The average daily traffic volume in 24Q3 was -1% year-on-year, and toll revenue was 0.37 billion yuan, or -3% year-on-year. 2) Traffic volume on the 24Q3 section of the Ningxuanhang Expressway and Yuewu Expressway was +61%, +99%, and toll revenue was +55% and +104% year-on-year, mainly due to the significant increase in traffic traffic and toll revenue after the opening of the “guillotine road”. 3) The Xuanguang and Guangci expressways were affected by the renovation and expansion. In particular, the one-way traffic policy implemented on March 8 led to an average daily traffic volume of -59% and 57% year-on-year in 24Q3, and -67% and -63% of toll revenue. The renovation and expansion is expected to be completed by the end of 2024.

Cost and expense side: 24Q3, operating cost was 1.37 billion yuan, +4% year over year, of which the toll road business operating cost was about 0.38 billion yuan, +5% year over year, and the gross margin of the toll road business was about 62%, or -4 pct year on year. Financial expenses of 0.019 billion yuan, -24% year over year, were mainly due to lower interest rates on stock loans and increased interest income on deposits. Profit from changes in fair value - -0.006 billion yuan, compared to 0.033 billion yuan in the same period last year.

Profit forecasting and investment advice

In the context of economic recovery, once the renovation and expansion of the Xuanguang Expressway is completed, it will drive traffic to recover and grow. We expect the company's net profit to be 1.6, 1.76, and 1.84 billion yuan respectively in 24-26, maintaining an “increase in holdings” rating.

Risk warning:

The macro environment falls short of expectations, traffic flow falls short of expectations, etc.