Investment positives

We initiate coverage of Anhui Expressway’s (AHE) A-shares with an OUTPERFORM rating and a target price of Rmb17.32, implying 2025e and 2026e dividend yields of 4.0% and 4.4%. We resume coverage of its H-shares with a target price of HK$15.12, implying 2025e and 2026e dividend yields of 5.0% and 5.6%. AHE is the only A-H dual-listed toll road company in Anhui Province.

Why an OUTPERFORM rating?

AHE’s road assets are located in key interprovincial transportation routes, with strong profitability and long toll collection periods. AHE's road assets are mostly located in interprovincial junctions. They can be used to reach local rivers as well as the eastern and western parts of Anhui province. They also connect the southern and northern areas of this province. In the regions where the firm’s road assets are located, the local automobile industry is strong and demand for passenger and freight transportation remains robust. AHE's core road assets started operation many years ago and had an average gross margin of 59.5% over 2014–2024. They have had a long toll collection period after being renovated or expanded.

Project renovation, expansion, acquisition, and investment to facilitate sustainable growth. In the near term, we believe the acquisition of the Anhui section of the Fuzhou and Sixu Expressways, and the completion of the renovation or expansion of the Xuanguang and Guangci Expressways1 could contribute incremental earnings. Meanwhile, we believe the acquisition of a 7% stake in Shandong Hi-Speed Company Limited may boost AHE’s investment income by about Rmb300mn in 2026. In the medium and long term, the renovation and expansion of Gaojie Expressway as well as AHE’s investment in the construction of new roads could make the firm’s growth sustainable.

Attractive dividend yield. The firm guides a dividend payout ratio of at least 60% for 2025–2027. We estimate that its A-shares are trading at 2025e and 2026e dividend yields of 4.5%2 and 4.9%, both being among the highest in the A-share expressway sector; its H-shares are trading at 2025e and 2026e dividend yields of 5.4% and 6.0%, also among the highest in the H-share expressway sector.

How do we differ from the market? The market is concerned about the firm's debt-to-asset ratio, financial expenses, and cash flow. However, we believe the vehicle traffic of the renovated or expanded roads could increase. We think the firm has solid financing options.

Potential catalysts: Increases in the vehicle traffic of the renovated or expanded roads; expansion in investment gains.

Financials and valuation

We expect the firm's EPS to be Rmb1.15 in 2025 and Rmb1.27 in 2026, implying a CAGR of 14.0% over 2024–2026. The average dividend yield of A-share expressway stocks is currently 4.5% in 2025. Given AHE's focus on expressways, its high-quality assets, and strong growth potential, we believe the market should pay AHE a valuation premium. We set our target price for AHE’s A-shares at Rmb17.32 (based on a 4% dividend yield), implying 15.0x 2025e and 13.6x 2026e P/E, offering 12.0% upside. We initiate coverage of AHE’s A-shares with an OUTPERFORM rating.

The average dividend yield of H-share expressway stocks is currently 5.9% in 2025. We set our target price for AHE’s Hshares at HK$15.12 (based on a 5% dividend yield), implying 12.0x 2025e and 10.8x 2026e P/E, offering 8.0% upside. We resume coverage of AHE’s H-shares with an OUTPERFORM rating.

Risks Disappointing economic growth; negative surprises in impacts of road renovation and expansion; changes in toll collec