CICC released a research report stating that due to Yuexiu Transport Infrastructure's (01052) continued reduction in financial expenses, the firm has raised its 2025/2026 net profit forecasts by 3.4%/4.3% to RMB739 million/RMB770 million respectively. The current share price corresponds to 8.5x/8.0x price-to-earnings ratios for 2025/2026. CICC maintains its outperform industry rating and, considering the company's stable dividend policy, has raised the target price by 4.3% to HK$4.34, corresponding to 9.0x 2025 PE and 8.5x 2026 PE, representing 6.1% upside potential from the current share price.

CICC's main viewpoints are as follows:

**1H25 Performance Exceeded Expectations**

The company announced 1H25 results: revenue of RMB2.10 billion, up 14.9% year-on-year; net profit attributable to shareholders of RMB360 million, up 14.9% year-on-year, exceeding expectations mainly due to better-than-expected toll revenue growth and significant decline in financial expenses. For 1H25, the company declared an interim dividend of HK$0.12 per share (approximately RMB0.1091), flat compared to 1H24, with a payout ratio of 50.6% (1H24 dividend was HK$0.12 per share with a payout ratio of 58.5%).

**1H25 Toll Revenue Grew Rapidly Benefiting from Pinlin Consolidation and Network Changes**

The company achieved toll revenue of RMB2.06 billion in 1H25, up 15.2% year-on-year, mainly benefiting from: 1) Pinlin Expressway's consolidation at end-2024 contributing RMB260 million in toll revenue for 1H25; 2) benefiting from Wuhuang Expressway's closure for construction, Hane Expressway's 1H25 toll revenue increased 56.6% year-on-year; 3) benefiting from Hanyi Expressway's expansion construction, Hancai Expressway's 1H25 toll revenue increased 17.3% year-on-year; 4) some road assets had lower revenue base in the same period last year due to rain and snow weather impacts.

**Significant Upward Pressure on Road Asset Amortization, Notable Decline in Financial Expenses**

On the cost side, the company's operating costs in 1H25 increased 22.8% year-on-year, with intangible operating rights amortization up 26.3% year-on-year. Cost growth exceeded revenue growth mainly due to the company's use of projected traffic volume method for amortization and consolidation of Pinlin Expressway. The company's gross margin in 1H25 decreased 3.4 percentage points year-on-year to 46.8%. On the expense side, the company's financial expenses in 1H25 decreased 11.1% year-on-year, mainly benefiting from declining market interest rates, with the company's weighted interest rate at 2.6% in 1H25 (3.15% in 1H24).

**Stable Dividends with Long-term Growth Potential**

The company focuses on reinvestment in its core business. It acquired Henan Pinlin Expressway at end-2024, strengthening its central region road network. In the long term, the firm believes the company's core road asset Guangzhou North Second Ring expansion and group asset injection are expected to continue bringing growth potential. Additionally, the company maintains a stable dividend policy, ensuring reasonable returns for investors. The 2024 payout ratio was 58.5%. If this ratio is maintained, the firm estimates the company's dividend yields for 2025/2026 would be 6.9%/7.3%, which is quite attractive.

**Risk Factors:** Expansion progress falling short of expectations, traffic diversion impact exceeding expectations, economic growth below expectations.