3Q24 results slightly beat our expectations

Jiangsu Expressway announced its 3Q24 results: Revenue fell 8.4% YoY to Rmb4.10bn. Excluding revenue from construction services, the firm’s revenue fell 0.9% YoY to Rmb3.29bn. Attributable net profit fell 11.8% YoY to Rmb1.37bn, and recurring attributable net profit rose 3.3% YoY to Rmb1.46bn, slightly beating our expectations as the firm's toll road business grew YoY. In 1-3Q24, revenue rose 21.1% YoY to Rmb14.06bn, and net profit attributable to shareholders grew 2.1% YoY to Rmb4.12bn.

Trends to watch Toll road business edged up YoY; new energy business performed well.

Toll road business: The firm's toll fee income rose 0.9% YoY to Rmb2.60bn in 3Q24. We estimate the average daily toll fee income of its core asset - the Shanghai-Nanjing Expressway - grew 5.9% YoY in 3Q24.

Auxiliary services: In 3Q24, revenue fell 8.1% YoY to Rmb449mn, mainly due to a YoY decline in sales volume of oil products.

Real estate business: In 3Q24, revenue declined 89.5% YoY to Rmb7.3mn as housing deliveries fell compared with a year ago.

Power sales: Revenue from power sales increased 32.5% YoY to Rmb182mn in 3Q24 thanks to rising on-grid electricity generated by offshore wind power projects.

Plans to invest in Danjin Expressway to optimize road network in

southern Jiangsu. According to a company announcement, the firm plans to invest about Rmb1.27bn to acquire a 74.6% stake in the Danyang-Jintan section of the Funing Liyang Expressway (Danjin Expressway). The preliminary estimate for the total investment in the project is Rmb14.56bn, with capital accounting for 40%, and the investment will be made in two phases. The Danjin Expressway will connect Zhenjiang-Danyang Expressway and Wufengshan Bridge to the north, and Changzhou-Liyang Expressway to the south, as well as two other major expressways, namely Shanghai-Nanjing Expressway and Jiangsu-Changzhou Expressway. Upon completion, the Danjin Expressway will further improve the capacity and efficiency of the regional transportation network, consolidate the company's leading position in the　　road network in southern Jiangsu, and generate economic returns for the company, in our view.

Absolute amount of dividend to remain solid, ensuring investment

returns. Except for 2020-2022, during which the firm was negatively impacted by the COVID-19 pandemic, the firm's earnings and dividend per share have increased almost every year since 2014. However, the absolute amount of dividend per year did not decline amid the COVID-19 outbreak, and dividend per share increased by another Rmb0.01 in 2023.

Based on the firm's historical dividend payout model and future capex, we believe its dividend per share may not decline, ensuring investment returns.

Financials and valuation

We maintain our 2024 and 2025 earnings forecasts. H-shares are trading at 7.8x 2024 and 7.1x 2025 P/E. A-shares are trading at 13.8x 2024 and 13.0x 2025 P/E. For H-shares, we maintain OUTPERFORM and our TP of HK$9.92 (9.7x 2024 P/E and 8.8x 2025 P/E), offering 24.9% upside. Given the firm's visible dividend payout and solid fundamentals, we maintain an OUTPERFORM rating and raise our TP 25% to Rmb15 for A-shares, implying 16.2x 2024e and 15.2x 2025e P/E, offering 15.9% upside.

Risks

Disappointing economic growth and/or traffic volume of new road assets.