2024 results largely in line with our expectations

Shandong Hi-speed announced its 2024 results: Revenue rose 7.3% YoY to Rmb28.49bn. Attributable net profit fell 3.1% YoY to Rmb3.20bn, largely in line with our expectations. In 4Q24, revenue fell 22.9% YoY to Rmb8.59bn, and attributable net profit fell 4.6% YoY to Rmb681mn.

Trends to watch

Toll road business under pressure; investment segment solid. By business:

Road and bridge operation: Toll revenue fell 5.8% YoY to Rmb9.65bn in 2024, mainly because toll revenue from Jiqing Expressway (a core road asset) dropped 12.1% YoY due to traffic diversion from Jiqing Middle Line and reconstruction and expansion of intersection sections.

Investment operation: Investment income rose 2.3% YoY to Rmb1.40bn in 2024, due to increased interest income from debt investment and disposal of long-term investments.

Rail transit: In 2024, revenue rose 6.5% YoY to Rmb4.85bn and net profit fell 4.2% YoY to Rmb431mn.

Information Group: In 2024, revenue rose 2.5% YoY to Rmb4.47bn and net profit grew 17.9% YoY to Rmb369mn.

Continued investment in main business; earnings has growth potential. The firm completed expansion of Jihe Expressway on December 20, 2024, and we believe the subsequent recovery in traffic volume and increase in toll rates after the project resumed operation should boost short-term earnings. In the medium and long term, the company will continue its focus on main business. Specifically, it may renovate and expand existing expressways (e.g., the Weilai project and G220 Dongshen project in 2024), and invest in new market-oriented road projects (e.g., 51% stake in Xinxiang-Changhuan section of Hebao expressway acquired in 2024).

Importance attached to shareholder returns; dividend per share maintained. According to corporate filings, the firm plans to keep its dividend ratio no lower than 60% over next five years. In the past, it maintained dividend per share despite earnings declines. The company distributed Rmb0.42 dividend per share in 2024, which is the same as in 2023, and dividend payout ratio rose 2.1ppt to 63.8%. We believe the stable dividend policy can effectively ensure absolute returns for investors. We estimate the current stock price implies an attractive dividend yield of 4.2% for 2025 and 4.3% for 2026.

Financials and valuation

We keep our 2025 earnings forecast largely unchanged and introduce our 2026 earnings forecast at Rmb3.639bn. The stock is trading at 14.3x 2025e and 13.9x 2026e P/E. We roll over valuation to 2025. We maintain an OUTPERFORM rating and raise our TP 14.9% to Rmb11.50 (given the stable dividend policy), implying 15.8x 2025e and 15.3x 2026e P/E, offering 10.5% upside.

Risks

Disappointing economic growth; slower-than-expected progress in reconstruction and expansion; changes in policies on the toll road industry.