2024 results slightly miss our expectations

Guangdong Provincial Expressway Dev’t (GPED) announced its 2024 results: Revenue fell 6.3% YoY to Rmb4.57bn; and attributable net profit declined 4.4% YoY to Rmb1.56bn. In 4Q24, revenue fell 10.4% YoY to Rmb1.07bn, and attributable net profit slid 25.9% YoY to Rmb206mn, slightly missing our expectations, as road network changes had a larger- than-expected impact on traffic diversion to road assets controlled by the company.

GPED announces dividends of Rmb0.523/sh for 2024, implying a dividend payout ratio of 70%.

Trends to watch Toll revenue declined YoY in 2024 as changes in road networks weighed on GPED’s core road assets.The firm's toll revenue fell 6.5%

YoY in 2024, with toll revenue from Guanghui Expressway and Jingzhu Expressway’s Guangzhu Section down 9.7% and 6.7% YoY. Guanghui Expressway was affected by traffic diversion from new toll roads (Huilong Expressway and Guanfan Expressway) and the opening of Guangzhou- Shantou High Speed Railway, Meilong High Speed Railway and Guangzhou-Huizhou Intercity Railway. The Guangzhu Section of Jingzhu Expressway was negatively affected by the opening of Shenzhen- Zhongshan Bridge and Nanzhong Expressway as well as reconstruction and expansion projects.

Investors still need to watch the impact of traffic diversion in the near term; we expect growth potential from reconstruction and expansion

in the long term. The impact from the opening of the Shenzhen- Zhongshan Bridge on the firm's roads may continue in 2025, in our view.

In the long term, the Guangzhu section of Jingzhu Expressway is being expanded, and the expansion of Guanghui Expressway is also progressing smoothly1. We expect road assets to extend toll collection periods and raise toll rates after the expansion is completed, supporting the firm's long-term growth.

Solid dividend policy; payout ratio among the highest in the industry.

According to the company's shareholder return plan for 2024-2026, its annual cash dividends in this period will be at least 70% of its net profit　　attributable to shareholders, making GPED one of the listed toll road companies with the highest dividend payout ratio. The firm’s current share prices imply a dividend yield of 4.0% in both 2025 and 2026, which is attractive.

Financials and valuation

Given the impact of road network changes, we cut our 2025 net profit forecast 7.0% to about Rmb1.59bn. We introduce our 2026 net profit forecast of around Rmb1.62bn. The stock is trading at 17.6x and 17.4x 2025e and 2026e P/E. We maintain an OUTPERFORM rating. However, due to the firm's solid dividend policy, we raise our target price by 10.7% to Rmb15.23 (implying 20.0x 2025e P/E and 19.7x 2026e P/E), offering 13.5% upside.

Risks

Disappointing economic growth; slower-than-expected progress in reconstruction and expansion; shaper-than-predicted impacts from traffic diversion.