3Q25 results in line with our expectations

Guangdong Provincial Expressway Development announced its3Q25 results: Revenue fell 2.12% YoY to Rmb1,245mn, andgross margin rose 1.5ppt YoY to 70.1%. Attributable net profitfell 2.58% YoY to Rmb488mn. In 1–3Q25, revenue fell 4.0%YoY to Rmb3.36bn and gross margin rose 0.65ppt YoY to68.9%. Attributable net profit rose 13.9% YoY to Rmb1,545mn.

Trends to watch

Toll revenue may remain under pressure due to trafficdiversion for core road assets. In 1H25, traffic volume ofJingzhu Expressway Guangzhu Section and Fokai Expressway(core road assets) fell 2.0% YoY and 6.5% YoY, and toll fees fell18.8% YoY and 7.9% YoY. We estimate revenue of these two sections declined by mid-single digits YoY in 3Q25.

The Guangzhu Section of the Jingzhu Expressway was affectedby traffic diversion from the Shenzhong Expressway, theZhongkai Expressway and the Nanzhong Expressway, and theFokai Expressway was impacted by the closure of theLianhuashan Tunnel in the early stages of the expansion of theShenzhen-Zhong Expressway and the Jianghe Expressway. Wethink core road assets may continue to be affected by changesin road network structure.

We suggest paying attention to the impact of trafficdiversion in the near term, and expect the firm's roadassets to grow in the long term thanks to road constructionand expansion. We think the impact of traffic diversion from theShenzhong section may continue in the short term. However, inthe long term, the Guangzhu section of Jingzhu Expressway isbeing renovated and expanded, and the expansion of GuanghuiExpressway is progressing smoothly (the firm announced that itplans to increase investment in the Guanghui Expresswayexpansion project by Rmb5,448bn). We expect the expansion project to extend the toll collection period for road assets, andimprove vehicle traffic and toll standards, boosting growth.

Dividend policy continues; dividend yield attractive.

According to corporate filings, annual cash dividends in 2024–2026 should not be less than 70% of net profit attributable toshareholders, one of the highest dividend payout ratios amonglisted toll road companies. According to our calculation based ona 70% dividend payout ratio, the current stock price implies adividend yield of 4.9% in 2025 and 4.3% in 2026, offeringinvestment value.

Financials and valuation

Considering the impact of traffic diversion, we lower our 2025and 2026 attributable net profit forecasts 4.8% and 4.0% toRmb1.76bn and Rmb1.55bn. The stock is trading at 14.2x2025e and 16.1x 2026e P/E, with dividend yields of 4.9% and4.3%. We maintain an OUTPERFORM rating and TP ofRmb15.23, implying 18.1x 2025e and 20.5x 2026e P/E, offering27.4% upside.

Risks

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