The Beijing-Shanghai High Speed Rail released its 2024 three-quarter report. In 24Q3, it achieved operating income of 11.49 billion yuan, a year-on-year decrease of 0.9%, and realized net profit of 3.66 billion yuan, a year-on-year decrease of 3.2%. In the first three quarters, it achieved a total operating income of 32.36 billion yuan, an increase of 4.8% over the previous year, and realized a net profit of 10.02 billion yuan, an increase of 12.4% over the previous year.

The main line business affects revenue, and may maintain good growth across the line. 24Q3's revenue fell 0.9% year on year. We believe that the main reason was due to the decline in local line traffic. The post-pandemic travel restoration in the first three quarters of last year made the main line base high. At the same time, due to the explosion of niche attractions this year, there was a clear trend of travelers shifting to the Midwest, which led to the diversion of passenger traffic in the Beijing and Shanghai regions, which further affected the main line's traffic volume. The 24Q3 company achieved gross profit of 5.7 billion yuan, -0.15 billions/ -2.6% year on year, gross profit margin of 49.6%, -7 pcts year on year, and -0.8 pcts month on month. The pressure on the main line traffic dragged down the company's gross profit, and the cross-line business is expected to maintain good growth.

Jingfu Anhui achieved profit for the first time in a single quarter, and achieved net profit of 0.04 billion yuan in Q3. 24Q3 Jingfu Anhui achieved net profit of 0.04 billion yuan, an increase of 0.16 billion yuan over the previous year, and reversed losses for the first time in a single quarter (Q1 and Q2 net profit of -0.05 billion yuan and -0.1 billion yuan respectively in 2024). The total net loss for the first three quarters was 0.11 billion yuan. The loss for the same period last year was 0.69 billion yuan, a sharp year-on-year reduction. It is expected that along with the improvement of the railway network structure, Jingfu Anhui's business situation will continue to improve and profitability will continue improve.

Financial costs continue to fall. The 24Q3 company's operating cost was 5.79 billion yuan, +41.85 million/ +0.7% year on year. The company's operating cost in the first three quarters was 16.77 billion yuan, up 1.4% year on year. In terms of expenses, the 24Q3 company's management expenses were 0.2 billion yuan, +1.95 million/ +1% year on year, the company's management expenses for the first three quarters were 0.6 billion yuan, up 0.8% year on year, financial expenses were 0.43 billion yuan, -0.1 billion/ -22.9% year on year, and the company's financial expenses for the first three quarters were 1.36 billion yuan, down 26.1% year on year, mainly benefiting from debt replacement and falling interest rates.

Investment advice. The short-term main line is pressured by base figures and macroeconomic factors. In the long run, the company has great potential for cross-line growth. The Beijing-Fu-Anhui business situation may continue to improve. The Hu-Su-Shanghai Railway is expected to open and operate by the end of '24, and the Beijing-Xiongshang High Speed Rail is expected to open and operate in '26. After opening, the railway networking effect around Anhui is prominent, and the cross-line ranking is expected to continue to grow. Considering the pressure on the company's main line traffic, we slightly lowered our profit forecast. We expect the company's net profit to be 12.78, 13.68, and 15.07 billion yuan respectively in 24-26, corresponding to the 24-year PE of 21.3x and PB of 1.3x, maintaining the “Highly Recommended” rating.

Risk warning: Competition risks brought about by other means of transportation, risk of untimely liquidation of China Railway and changes in clearing policies, risk that capacity growth between Beijing, Fujian and Anhui falls short of expectations, risk of major safety accidents in high-speed rail, etc.