Cathay Haitong has released a research report maintaining its "Buy" rating on ANHUIEXPRESSWAY (00995). The company's acquisition of group road assets in Q1 2025 significantly enhanced performance, while also benefiting from accelerated recovery following the reconstruction and expansion of Xuanguang Expressway. The company maintains its commitment to high dividend policy with rising and stable dividend yield, highlighting that market risk appetite continues to drive relative returns. The firm maintains its net profit forecasts of RMB 1.9/1.9/1.8 billion for 2025-27. Based on 12x PE for 2025, the target price remains at HK$14.51 (converted at 1 HKD = 0.91 RMB).
Cathay Haitong's main viewpoints are as follows:
**First-half acquisition of group road assets boosts performance, comparable performance continues steady growth**
The company completed the acquisition of Fuzhou and Sixu expressways from the group in Q1 2025, significantly enhancing performance. The 2025 consolidation includes retrospective adjustments to 2024 financial statements. In the first half of 2025, the company's net profit attributable to shareholders reached RMB 960 million, representing 4% year-on-year growth on a comparable basis, maintaining steady growth momentum.
1) Toll revenue grew significantly: Benefiting from the release of previously suppressed traffic demand following Xuanguang's reconstruction and expansion, toll revenue recovered to 90% of pre-reconstruction levels in 2022. The company's toll revenue increased 13% year-on-year, with Q1 up 9% and Q2 up 18%. The Q2 acceleration benefited from Xuanguang toll revenue recovering to slightly above the same period in 2022.
2) Financial expenses increased: Affected by borrowing costs from road asset acquisitions and capitalized interest expenses following Xuanguang's reconstruction and expansion, financial expenses rose quarter by quarter in the first half.
**Market risk appetite changes and shareholder reduction announcement pressure stock price, but long-term value remains unchanged**
On August 28, 2025, the company announced that shareholder China Merchants Expressway (holding 29.06%) plans to reduce its stake by no more than 3%, with block trading and centralized bidding methods accounting for no more than 2% and 1% respectively. The reduction period is within three months starting 15 trading days after the announcement disclosure. The reduction announcement combined with market risk appetite has pressured the stock price recently.
The firm believes China Merchants Expressway focuses on highway investment and operations. Besides its own road reconstruction and expansion projects, it needs to reserve funds for mergers and acquisitions, making the rational reduction driven by business development needs and funding requirements. ANHUIEXPRESSWAY has excellent geographic positioning and rational capital expenditure, with ROE consistently stable at 10-13%, leading the industry in profitability. Future policy optimization in the toll road industry is expected to systematically reduce reinvestment risks.
**High dividend commitment continues, dividend yield significantly rebounds**
In April 2025, the company launched a new shareholder return plan, committing to cash dividend ratios of no less than 60% of net profit attributable to shareholders for 2025-27, maintaining the high dividend commitment level from the previous round. Recent months of stock price adjustments have brought the company's PE valuation back down. Assuming future dividend ratios remain at the 60% high level, the firm estimates dividend yields of 6.4%, 6.5%, and 6.1% for 2025-27 respectively. With stable cash flow and certain dividends, the company remains a dividend priority in the transportation industry. Market risk appetite continues to drive relative returns.
**Risk warnings**: Economic fluctuations, industry policies, reinvestment risks, market style rotation, etc.