The Zhitong Finance App learned that Dongguan Securities released a research report saying that those with high dividends in the highway sector have strong defensive attributes and are expected to achieve definite returns in an uncertain market. Since the dividend rate can be simplified to dividend per share divided by the stock price, dividend rate returns will increase if the highway sector weakens. Considering the gradual entry of medium- and long-term capital such as insurance capital into the market from 2023, there is a certain preference for high dividend stocks with low volatility and high dividends, which will support the high dividend market. Recommended attention: Wantong Expressway (600012.SH), China Merchants Highway (001965.SZ), Guangdong Expressway A (000429.SZ), etc.

▍ The main views of Dongguan Securities are as follows:

Find certainty in uncertainty.

Since 2023, the domestic economy as a whole has shown a fluctuating recovery trend. The uncertainty of economic recovery and differences in expectations have led to significant overall market fluctuations. It is an attempt to find definite benefits in the midst of uncertainty and explore the opportunities that exist in the expressway industry in the context of falling interest rates and increasing uncertainty.

An introduction to the expressway section.

Highways are of great significance in promoting infrastructure connectivity, building a two-way open land and sea corridor to the outside world, improving conditions for in-depth regional economic development, enhancing the radiation-driving capacity of major urban agglomerations, and promoting the coordinated development of East, China and the West and the fight against poverty in impoverished regions. After 30 years of rapid development, China's highway network plans have basically been completed. The road network mileage growth rate has slowed down, capital expenditure has been reduced, and the highway industry has entered a mature period. Expressway profits are mainly affected by prices, traffic, costs, and policies.

On the revenue side, the main factors affecting expressways are price, toll mileage, and traffic volume. On the cost side, it is mainly operating and financial costs, as well as costs incurred during renovation and expansion. Since mature highway network costs are mainly depreciation and amortization (accounting for more than 60% of the total cost) and operating costs, revenue side traffic flow tends to stabilize, and profits of listed expressway companies are stable.

Policy potential:

The current “Toll Road Administration Regulations” are the 2004 edition. In recent years, a large number of toll roads built in the 90s of the last century are close to the toll period. Whether it is the maintenance and maintenance fee issue of operating highways or the “unified loan repayment” issue of government loan repayment roads, new laws and regulations are needed to resolve them. In 2022, the Guangzhou-Foshan Expressway managed by the Guangdong Expressway Company expired and was transferred to free use, but the listed company is still responsible for maintenance, and the payment of specific expenses is still an important issue unresolved by the government.

As toll roads built in the early stages after 2023 gradually reached their operating period, huge debt pressure may accelerate the introduction of policies. Since 2013, the Ministry of Transport has drafted three revisions. 2022 and 2023 are listed as legislative projects to be completed or announced within the year. The pressure on the industry will increase in 2023-2024, and the implementation of the new “Toll Road Administration Regulations” is expected to accelerate. Referring to the 2018 “Toll Road Administration Regulations (Revision Draft for Comments)”, it is expected that the operating period of toll roads will be extended and the medium- to long-term profit period problems of a large number of listed expressway companies will be solved.

Investment Strategy: First coverage, giving the industry an overall “standard” rating.

The highway industry itself is undervalued and has high dividends, and has strong defensive properties. Reviewing the yield of the highway industry in the past ten years compared to the Shanghai and Shenzhen 300 Index, we found that when the performance of the Shanghai and Shenzhen 300 is strong, the relative yield of the highway sector is often lower, while when the performance of the Shanghai and Shenzhen 300 is weak, the highway sector usually achieves higher relative returns. This may be related to the high dividends and stable earnings of highways. When the overall market declines, capital favors definitive returns.

In addition, high dividend rate targets in the highway sector can usually provide dividend rates that outperform ten-year treasury bond yields. When the overall performance of the market is weak, low fluctuation market performance can often outperform the general market index to obtain higher relative returns. In the current situation where macroeconomic recovery expectations are not strong and market uncertainty is high, there is stable dividend income and greater potential for market capitalization growth. Since 2023, there has been insufficient momentum for domestic economic recovery. The return on the non-main business direction invested by highway companies such as photovoltaics and real estate has declined, and the return on reinvestment is low. Meanwhile, the cash flow of highway companies is stable, and highway high dividend companies will maintain a high dividend ratio.

Overall, those with high dividends in the highway sector have strong defensive properties and are expected to achieve definite returns in an uncertain market. Since the dividend rate can be simplified to dividend per share divided by the stock price, dividend rate returns will increase if the highway sector weakens. Considering that medium- and long-term capital such as insurance capital will gradually enter the market from 2023, there is a certain preference for high dividend stocks with low fluctuations and high dividends, which will provide some support for the high dividend target market.

Risk warning:

There are risks such as industry policy updates falling short of expectations, expiration of road product charging periods, increased diversion of air, rail and water transportation, macroeconomic fluctuations, and natural disasters.