Yuexiu Transport will report its 1H24 results next Tue (6 Aug). Given the decline in both traffic volume and revenue as a result of traffic diversion in 5M24, we forecast its net profit in 1H24E to drop 14% YoY to RMB366mn. We revise down our 2024E-26E earnings forecast by 17-19%, as we expect traffic diversion on some key expressways will continue. Looking forward, we see the increase in the company's shareholding (to 12%) by China Merchants Expressway (001965 CH, NR) implying progress on the potential asset injection of Henan Pinglin Expressway (河南平临高速) and other forms of potential cooperation. Maintain BUY with a new DCF-based TP of HK$5.9 (previously HK$7.2), implying 11x 2024E P/E. We expect a better entry point after the results announcement next week.

5M24 operating statistics. For GNSR (Guangzhou Northern Second Ring, the company's largest toll road in terms of both traffic volume and revenue), toll revenue dropped 7% YoY (despite stable traffic volume) in 5M24 due to shortened driving distance as a results of the commencement of Conghua- Huangpu Expressway in late 2023. We calculate that the consolidated toll revenue / toll revenue from JVs dropped 5% YoY / 9% YoY in 5M24.

1H24 results preview. We forecast revenue in 1H24E to drop ~5% YoY to ~RMB1.8bn, and gross margin to narrow 2ppt YoY to 54.6% due to less traffic volume. We expect profit from associates & JVs to drop 18% YoY to ~RMB106mn. We forecast net profit to drop 14% YoY to RMB366mn.

Increase in shareholding by CM Expressway. CM Expressway first disclosed it owned 5% interest in Yuexiu Transport in early Dec 2023 and gradually increased the interest to 12% in mid-Jun (price range: HK$3.92- 4.41). We expect more co-operations between the two companies, including the asset injection of Henan Pinglin Expressway which is jointly owned by CM Expressway and Yuexiu Group (parent company of Yuexiu Transport).