2023 results largely in line with our expectations

Jiangsu Expressway announced its 2023 results: Revenue rose 14.6% YoY to Rmb15.19bn; and net profit attributable to shareholders grew 18.5% YoY to Rmb4.41bn, largely in line with our expectations. In 4Q23, revenue fell 5.0% YoY to Rmb3.58bn; and attributable net profit dropped by 38.8% YoY to Rmb377mn, due to a high base in 4Q22. Yanjiang Company, an associate enterprise, recognized investment income of Rmb0.42bn in 4Q22 due to the issuance of real estate investment trusts (REITs).

Trends to watch

Toll fee income recovers; new road assets boost revenue growth.

Toll road and bridge business: In 2023, the toll fee income of the company increased by 29.9% YoY to Rmb9.51bn. Toll fee income of its core asset - the Shanghai-Nanjing Expressway - rose 22.7% YoY (up 2.3% from 2021). Toll fee income of its new road and bridge assets increased markedly. In 2023, toll fee income of the Changyi expressway, which was launched at end-2020, climbed 43.8% YoY; and toll fee income of the Wufengshan bridge, which was launched in 2021, jumped 146% YoY. Net profit of the Wufengshan bridge reached Rmb310mn in 2023. The company holds a 64.5% stake in the bridge asset.

Auxiliary services: In 2023, revenue from auxiliary services increased by 64.1% YoY to Rmb1.84bn. Specifically, revenue from rental of service areas rose 97% YoY (down 53% from 2021). YoY growth in rental income slowed due to the termination of some service area agreements and rental reduction. Income from selling oil products increased by 63% YoY. GM of the auxiliary service business rose 12.2ppt YoY, thanks to income from selling oil products.

New energy business: Revenue from the new energy business fell 1.5% YoY to Rmb642mn in 2023, due to lower on-grid electricity generation of offshore wind power plants.

In 2023, its earnings resumed growth and dividend increased to Rmb0.47/sh, implying a dividend payout ratio of 53.65%. We think the firm will likely maintain sound absolute returns for investors, as it attaches importance to investor returns and it follows a stable dividend payment policy.

Road network in southern Jiangsu will likely boost earnings growth in the long term. According to corporate filings, the company plans to invest Rmb3.25bn to the Wuxi-Suzhou section of the Wuxi-Taicang expressway. In addition, it plans to acquire a 65% stake in the Suzhou- Wuxi-Changzhou Southern Expressway Company from Jiangsu Communications Holding for Rmb5.2bn. The company continues to invest in high-quality road assets in southern Jiangsu. In our opinion, such moves could help mitigate the heavy congestion in the Wuxi-Suzhou section of the Shanghai-Nanjing Expressway, and reduce the delays caused by traffic diversions. In addition, we think such moves could also extend the firm's rights of collecting toll fees from road assets and boost investment returns.

Financials and valuation

We maintain our 2024 and 2025 earnings forecasts. A-shares are trading at 11.9x 2024e and 11.3x 2025e P/E. H-shares are trading at 7.2x 2024e and 6.5x 2025e P/E. For A-shares, considering the company’s stable dividend payment, we maintain an OUTPERFORM rating and our target price of Rmb12 (12.1x 2024e and 11.5x 2025e P/E), offering 2.0% upside. For H-shares, we maintain an OUTPERFORM rating and our target price of HK$9.92 (8.9x 2024e and 8.1x 2025e P/E), offering 23.9% upside.

Risks

Growth of vehicle traffic and/or economic growth disappoints; capex exceeds our expectation.