1Q25 results beat our expectations

Guangdong Provincial Expressway Development (GPED) announced its 1Q25 results: Revenue fell 6.6% YoY to Rmb1.05bn, and net profit attributable to shareholders grew 56.3% YoY to Rmb657mn, beating our expectations, mainly due to write-back of Rmb0.34bn of bad debt provisions for management and maintenance expenses at Guangfo Company.

Trends to watch

Write-back of bad debt provisions for management and maintenance expenses at Guangfo Company boosts 2025 earnings. GPED holds a 75% stake in Guangfo Company. Guangfo Expressway stopped toll collection on March 3, 2022, but the project was not handed over at that time. As a result, GPED made full provisions for credit impairment losses due to related management and maintenance expenses in 2022-2024 (Rmb0.34bn). According to corporate filings, the related management and maintenance expenses would be paid back to Guangfo Company after auditing and liquidation procedures, so GPED reversed its bad debt provisions, boosting its 1Q25 profit.

Watch impact from traffic diversion in the short term; upbeat on growth potential from reconstruction and expansion in the long term. According to the firm, toll revenue from Fokai Expressway, Guangzhu East Expressway, and Guanghui Expressway were down 8.7%, down 20.8%, and up 4.6% YoY in 1Q25. In the short term, we think the impact from the opening of the Shenzhen-Zhongshan Bridge on the firm’s road assets may continue in 2025. In the long term, the Guangzhu section of Jingzhu Expressway is being expanded, and the expansion of Guanghui Expressway is progressing smoothly (the project was approved in January 2025). We expect the road assets to extend toll collection periods and raise toll rates after expansion is completed, supporting the firm’s long- term growth.

Dividend policy solid; dividend yield attractive. According to the firm’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 ratios. According to our calculation, the firm’s current　share price implies a dividend yield of 4.4% and 3.9% in 2025 and 2026, which is attractive.

Financials and valuation

Considering the firm’s write-back of bad debt provisions, we raise our 2025 net profit forecast 16.4% to Rmb1.853bn. We largely maintain our 2026 earnings forecast. The stock is trading at 15.8x 2025e and 18.1x 2026e P/E. As the write-back of bad debt provisions is a one-off impact, we maintain an OUTPERFORM rating and our target price of Rmb15.23, implying 17.2x 2025e and 19.7x 2026e P/E and offering 8.7% upside.

Risks

Greater-than-expected impact from traffic diversion; disappointing progress in reconstruction and expansion; slower-than-expected economic growth.