Introduction to this report:

The company has an excellent road network location, leading the industry in ROE for a long time, and the growth trend of traffic demand in 2024 is better than that of the industry. Future industry policy optimization is expected to improve reasonable returns. It is expected that a stable dividend policy will benefit market risk appetite.

Key investment points:

Maintain an increase in holdings rating. The Ninghu-Shanghai Expressway is the only listed road and bridge company in Jiangsu Province. It has an excellent road production location, heavy traffic, and ROE has long led the industry. Considering the impact of fluctuations in traffic demand in the second half of 2024, the company's 2024-25 net profit forecast was lowered to 46/49 (50/54) billion yuan, and the 2026 net profit forecast was added by 5.2 billion yuan.

The company's performance is growing steadily, and the main highway business is superior to the industry. In the first three quarters of 2024, the company's net profit to mother was 4.12 billion yuan, up 2% year on year, and after deducting non-net profit, it increased nearly 8% year on year.

Among them: 1) Main toll road business: The company's toll revenue increased 0.44% year on year in the first three quarters; the weighted average traffic volume of the holding road network increased 2.5% year on year, with a year-on-year increase of nearly 5% in the first half of the year. Q3 was affected by fluctuations in industry traffic demand. The company's road network continues to show location advantages and demand resilience, and the growth trend is better than that of the industry. 2) Benefiting from long-term debt swaps and ultra-short term financing, falling interest rates drove an 18% year-on-year reduction in financial expenses in the first three quarters. 3) Others:

The decline in oil sales and the year-on-year decrease in the scale of real estate delivery dragged down revenue growth.

Actively revise and expand to extend the operating period, and optimize policies to enhance reasonable returns. It is estimated that the company currently has about 9.3 years remaining in the weighted toll collection period for road products. In recent years, the company has extended the toll operation period through construction, renovation and expansion to ensure long-term profitability. Among them: 1) Construction of the Longtan Bridge project began in 2020. The conditions for opening are already in place as scheduled, and the northern connection of the bridge is expected to be opened to traffic within 2025. 2) The expansion of the southern section of the Xiyi Expressway and the Xitai project are expected to be opened to traffic in 2026 and 2028, respectively. 3) Prepare the capacity expansion project for the Jiangsu section of the Shanghai-Nanjing Expressway. 4) It is proposed to invest in the Danjin Expressway project to connect the two main horizontal corridors of Shanghai, Nanjing, and Ningchang, which will consolidate the dominant position of the southern Jiangsu road network. It is expected that the optimization of toll road policies is expected to accelerate, and new construction, renovation and expansion projects are expected to extend toll periods and increase reasonable returns.

The company's dividend policy is stable, benefiting from market risk appetite. In the five years of 2018-22, the company maintained a high dividend policy of RMB 0.46 per share, and the amount of dividends remained stable even under the impact of the pandemic. In 2023, as the company's performance increased, the dividend per share increased to RMB 0.47, corresponding to a dividend ratio of 54%. Considering the company's future capital expenditure requirements, it is expected that the dividend policy will remain stable in the future. Assuming that the cash dividend per share is maintained in 2024, the current dividend rate of 5.9% is estimated.

Risk warning. Economic fluctuations, industry policies, reinvestment risks, market style changes, etc.