1H25 results largely in line with our expectations

Zhongyuan Expressway announced its 1H25 results: Revenue rose 13.17% YoY to Rmb3.11bn; net profit attributable to shareholders grew 7.68% YoY to Rmb663mn, largely in line with our expectations. In 2Q25, revenue rose 9.50% YoY to Rmb1.81bn, and attributable net profit fell 7.39% YoY to Rmb307mn.

Trends to watch

Toll revenue fell slightly in 2Q25, and rising costs weighed on profit. The firm’s toll revenue grew 2.2% YoY in 1H25 but declined 1.3% YoY in 2Q25, mainly due to a 21.3% YoY drop in tolls on the Luohe-Zhumadian section of the Beijing-Hong Kong-Macao Expressway. We believe this was likely related to the expansion of the Hubei section of the same expressway, while other sections remained relatively stable. In 1H25, the gross profit and GM of the toll revenue business fell 5.2% and 4.2ppt YoY, which we think may reflect higher maintenance costs, weighing on the firm’s overall profit.

Financial expenses fell; financial investment income remained solid. The firm actively pursued targeted financing, improved capital utilization efficiency, and continued to reduce financial expenses, which declined 18.2% YoY and 2.3% QoQ in 2Q25. Investment income rose 37.3% YoY in 1H25, reflecting strong performance in the financial sector. Net profit at Central China Trust, Zhongyuan Agricultural Insurance, and Zhongyuan Asset Management increased 18.5%, 15.7%, and 37.2% YoY in 1H25. In addition, Henan Jiaotou New Energy Development turned profitable, posting a profit of Rmb10.6mn in 1H25.

Dividend yield remains attractive; payout ratio still has upside potential. The firm places strong emphasis on shareholder returns. Under its announced plan to boost market capex, the dividend payout ratio will not fall below 40% over the next three years, signaling a clear and stable dividend policy. Moreover, we see further upside in its payout ratio compared with leading toll road peers. Based on a 40% payout ratio, the current price implies dividend yields of 4.5% in 2025 and 4.8% in 2026, which we consider attractive.

Financials and valuation

We maintain our 2025 and 2026 earnings forecasts. The stock is trading at 9.7x 2025e and 9.0x 2026e P/E. We maintain an OUTPERFORM rating and our target price of Rmb5.17, implying 10.9x 2025e and 10.2x 2026e P/E, and offering 12.6% upside.

Risks

Disappointing economic growth; higher-than-expected capex; impairment of real estate business.