Incidents:

On October 31, 2024, Shenzhen Express announced the 2024 three-quarter report:

In Q1-Q3 2024, the company achieved operating income of 5.86 billion yuan, -8.03% year-on-year, recorded net profit of 1.374 billion yuan, or -10.71% year-on-year, and recorded net profit after deducting non-return to mother 1.227 billion yuan, or -13.45% year on year.

Among them, in 2024Q3, the company achieved operating income of 2.103 billion yuan, -6.39% year over year; recorded net profit of 0.6 billion yuan, or -1.55% year over year; and recorded net profit of 0.554 billion yuan without return to mother, or -9.69% year over year.

Investment highlights:

Toll revenue is growing steadily, and the wind power business is under pressure in the short term

2024Q3, the company's toll road sector achieved steady growth, excluding the impact of the Yichang project. The total traffic volume of the company controlled toll roads was +4.55% compared to the same period last year, achieving toll revenue of 1.379 billion yuan, +4.22% year over year. Among them, benefiting from the opening of the Shenzhen-China Corridor, the traffic volume of the company's riverside project increased significantly, which in turn drove revenue from riverside projects +32.02% to 0.22 billion yuan over the same period last year.

2024Q3, due to the commissioning of new projects in the same period last year, the organic waste treatment business in the company's environmental protection business achieved revenue of 0.182 billion yuan, +23.69% over the same period, but wind power generation projects in the environmental protection business achieved revenue of 0.127 billion yuan, -18.86% compared to the same period last year, or the wind power generation business was under pressure in the short term due to increased wind abandonment rates and reduced wind resources.

Gross margin declined slightly year-on-year. The gross margin for the period fell 2.91 pct2024q3 to -1.60 pct to 40.24% year over year, or due to pressure on the clean energy power generation business; the cost ratio for the period was -2.91 pct/ -6.25 pct to 15.06% year over month, respectively; of these, the sales rate remained flat yearly/0.04 pct to 0.12%, respectively, and the management rate was +0.45 pct/y +0.34 pct to 5.09% yoy, respectively, R&D rate 0.18 pct/ remained flat at 0.44%, and financial rates were -3.54 pct/ -6.56 pct to 9.41% yoy, respectively. The company's profitability is relatively stable. 2024Q3 recorded a net interest rate of 28.54%, +1.40pct year on year, and a net interest rate of 26.36% without return to mother, and -0.96pct year on year.

High-quality road products continue to expand, and the drainage of the Shenzhen-China channel brings growth

The company is actively promoting the construction of major new construction, renovation and expansion projects such as Outer Ring Phase III and the Locomotive Expressway to continuously supplement the company's high-quality highway assets. Among them, the company plans to raise no more than 4.9 billion yuan in total through fixed increases for investment and construction of outer ring projects and repayment of interest-bearing liabilities. The issuance application was accepted by the Shanghai Stock Exchange on May 22, 2024. On June 30, 2024, the company successfully completed the simultaneous opening of the second phase along the river and the Shenzhen-China Corridor, which had a positive effect on the operating performance of the company's riverside expressway and locomotive highway. Among them, traffic and revenue on the riverside expressway increased significantly.

Profit forecast and investment rating We expect Shenzhen Express's revenue for 2024-2026 to be 8.596 billion yuan, 9.524 billion yuan and 9.837 billion yuan, respectively, -8%, +11%, and +3% year-on-year; net profit to mother will be 1.999 billion yuan, 2.208 billion yuan and 2.317 billion yuan, respectively, -14%, +10%, +5%, corresponding EPS of 0.92 yuan, 1.01 yuan. 1.06 yuan, corresponding PE is 10.98 times, 9.94 times, and 9.47 times, respectively. The main highway business is developing steadily, and the environmental protection business has extensive space as the second main business, maintaining a “gain” rating.

Risks indicate road network competition risks; risk of changes in charging policies; risk of environmental protection business development falling short of expectations; risk of rapid renovation and expansion falling short of expectations; and exchange rate risk.