The business of toll roads is growing steadily, and the advantages of road products are fully demonstrated. In the first half of 2023, with the full resumption of normal operation of the domestic economy and society, road traffic demand rebounded rapidly, but under the influence of the global economic downturn and weak external demand, the overall domestic economic production was under pressure. the growth rate of road freight traffic demand is slow; on the other hand, thanks to the enhancement of public willingness to drive themselves after the full restoration of social order, the volume of bus travel has rebounded steadily. In terms of traffic flow structure, the overall passenger-cargo ratio of each section in the first half of the year is about 80:20, which is basically the same as that in the same period in 2019. Among them, the passenger / cargo ratio of wholly-owned and holding roads in the first half of 2023 is about 79:21. During the reporting period, the group's main business income from toll roads was 2.599 billion yuan, accounting for 63.01% of the group's total operating income, an increase of 7.83% over the same period last year.

We will constantly improve the layout of the road network and plan to invest in the construction of the third phase of the outer ring. The company intends to issue no more than 654 million A shares to no more than 35 specific investors, including major shareholder Xintong, and raise no more than 6.5 billion yuan for the construction of the third phase of the outer ring and the repayment of interest-bearing liabilities. The third phase of the outer ring is about 16.8km, with an estimated total investment of 8.447 billion yuan. according to preliminary calculations, if the outer ring project is approved for a 25-year toll operation period, the after-tax financial internal rate of return of the whole line is about 6.76%. On the whole, it is better than the average return level of highway construction / reconstruction and expansion of domestic listed companies in recent years.

Through new construction, reconstruction and expansion, mergers and acquisitions, integration of resources and other means to increase the scale of highway assets.

At present, 8 of the group's 16 toll road projects (Meiguan, east and west sections of Ji-he, Shuiguan, Shuiguan extension, Longda, Guangshen, Yangmao) will expire before 2027, of which Yangmao is applying for a new operation period for the completion of reconstruction and expansion; mechanical engineering, Guangzhou and Shenzhen will be renovated and expanded and apply for new toll years; other approved projects will expire between 2029 and 2038 The first phase and the second phase of the outer ring highway will be opened to traffic in 2021 and 2022 respectively, and their operating term has not yet been approved.

The company actively enters the field of environmental protection and opens up a broader space for development. In the field of solid waste resource treatment business, Lande Environmental Protection, a wholly owned subsidiary of our company, is currently an important comprehensive treatment and construction operation enterprise of organic waste in China, with the service capacity of the whole industry chain of organic waste treatment. at present, the design and treatment scale of organic waste exceeds 6900 tons per day, ranking in the forefront of the domestic industry. In the field of clean energy business, the Group has accumulated wind power projects with installed capacity up to 648MW through investment and acquisition. In the first half of the year, the four combined wind power projects completed 86.86 million megawatts of electricity, with an operating income of about 350 million yuan. During the reporting period, the group realized environmental protection business income of about 752 million yuan, accounting for 18.24% of the group's total income.

Profit forecast: for the first time to cover the "overweight" rating. It is estimated that from 2023 to 2025, the operating income of the company will be 10310, 11.170 billion yuan, respectively, and the net profit of homing will be 23.22 billion, 25.87 billion yuan, respectively, and the corresponding PE will be 9.34x/8.38x/7.13x.

Risk hints: the growth rate of traffic flow is lower than expected; the investment in reconstruction and expansion is higher than expected; the impact of new road network diversion; the decline of toll road toll standards; profit forecast and valuation model is not as expected