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On August 16, the share prices of the three highway companies, Shandong Expressway, Nanjing-Shanghai Expressway and Shenzhen Expressway, continued to rise, setting new highs since their listing during the trading session.

Since the beginning of this year, dividend stocks in the A-share market have performed well, among which the highway sector has seen a significantly higher increase than the Shanghai Composite Index. This sector has previously outperformed the market for three consecutive years.Since August this year, the expressway sector has continued to strengthen, with the share prices of many individual stocks constantly hitting new highs. Brokerage research reports believe that expressway companies have steady growth in performance, outstanding low-volatility dividend attributes, and the value of high-quality transportation infrastructure assets continues to strengthen, and will continue to be a better asset for allocation in the future.

Stock price hits new high

Wind data shows that the Shenwan Highway Index (851731) has increased by 9.18% this year, significantly higher than the Shanghai Composite Index during the same period. Looking back over the past three years, the annual growth rates of the index in 2021, 2022, and 2023 were 6.9%, -0.3%, and 17.5%, respectively, outperforming the Shanghai Composite Index for three consecutive years.

In terms of individual stocks, Anhui Expressway, Shandong Expressway and Guangdong Expressway A ranked the top three in terms of growth this year, up 42.53%, 40.57% and 37.72% respectively. Following closely behind were Ninghu Expressway, China Merchants Expressway, Guangdong Expressway B, Shenzhen Expressway, Wuzhou Transportation, Chutian Expressway and Fujian Expressway, all of which rose by more than 20%. In addition, Sichuan Chengyu and Ganyue Expressways rose by more than 16%.

If the timeline is extended, the increase in many highway stocks is even more amazing. For example, Anhui Expressway has accumulated a total increase of about 160% in the past two years since August 2022. During the same period, Shandong Expressway has accumulated a total increase of 110%; Nanjing-Shanghai Expressway has accumulated a total increase of 104%; China Merchants Highway has accumulated a total increase of 101%; Guangdong Expressway A has accumulated a total increase of 78%.

Recently, the share prices of expressway companies have hit new highs. On August 16, Shandong Expressway, Nanjing-Shanghai Expressway and Shenzhen Expressway continued to rise, hitting new highs since their listing. Among them, Shandong Expressway's share price rose to 9.38 yuan per share during the session, and Nanjing-Shanghai Expressway's highest was 13.69 yuan per share.

Earlier on August 2, Anhui Expressway and Guangdong Expressway A also climbed sharply on the same day, rising to 16.1 yuan/share and 11.32 yuan/share respectively. Among them, Guangdong Expressway A hit a new high since its listing, while Anhui Expressway set a new high in nearly nine years.

It is worth noting that although the highway companies themselves have achieved good growth, the financial assets invested by highway companies in other industries are not ideal.

Taking Ganyue Expressway as an example, Ganyue Expressway achieved operating income of 3.22 billion yuan in the first half of the year, a year-on-year decrease of 7.22%; net profit of 627 million yuan, a year-on-year decrease of 14.33%. The reason for the decline in Ganyue Expressway's net profit is precisely due to the decline in the fair value of stock-type financial assets held in the first half of the year. Data show that Ganyue Expressway held 1.207 billion yuan in stock-type financial assets at the beginning of 2024, and the fair value of this asset lost 92 million yuan in the first half of the year. Mainly concentrated in the three stocks of Guosheng Financial Holdings, Hunan Post Technology and Xinda Real Estate, the secondary market prices of the above three stocks fell by 9.12%, 30.72% and 15.04% respectively in the first half of the year. However, if this gain or loss is excluded, Ganyue Expressway's non-net profit is 651 million yuan, a year-on-year increase of 9.1%.

Favored by insurance funds

Highways have become a popular asset in the current market environment due to their low-volatility dividends. Many highway companies have gained favor from social security funds, insurance companies, foreign capital and other institutions.

In the first half of this year, insurance funds, as "patient capital", frequently bought into highway companies. Take Great Wall Life Insurance as an example. In the first half of the year, Great Wall Life Insurance continued to increase its holdings in Ganyue Expressway. The latter's semi-annual report data showed that Great Wall Life Insurance ranked second among the top ten shareholders with 144 million shares (6.18% of the shares); and according to the 2023 annual report of Ganyue Expressway, Great Wall Life Insurance did not appear in the top ten shareholders. Obviously, its increase in holdings was mainly carried out in the first half of this year.

Great Wall Life Insurance previously stated that Ganyue Expressway is rooted in Jiangxi, has stable business and solid performance, which is in line with the insurance company's long-term investment philosophy and suitable for long-term holding of insurance funds. In addition, Great Wall Life Insurance also pointed out that it does not rule out the possibility of continuing to increase the company's shares in the next 12 months on the basis of complying with and abiding by the currently effective laws, regulations and normative documents.

In addition to Ganyue Expressway, Great Wall Life Insurance also increased its holdings of Zhongyuan Expressway by 2.5 million shares in the first half of this year, increasing its shareholding ratio by 1.91% to 5.93%, making it the third largest shareholder of Zhongyuan Expressway; it also bought 48.39 million shares of Wuzhou Transportation, accounting for 3.01% of the shares. In addition, Ping An Life Insurance bought 7.31 million shares of Anhui Expressway in the first half of this year, accounting for 0.44% of the shares.

According to the transportation industry tracking report released by Wanlian Securities, in terms of public fund holdings, the proportion of public fund holdings in the transportation industry in the second quarter of 2024 further increased month-on-month, but was still lower than the standard ratio. The performance of core stocks in the cross-border logistics and express delivery industry increased and decreased holdings differently, and core targets in the port, railway and highway sub-industries with high dividend attributes were still favored by funds.

Still has high configuration value

Since the beginning of this year, laws and regulations have been successively introduced in the field of highways across the country, and highway toll policies are expected to be adjusted, bringing new opportunities for highway business operations.

On May 22 this year, the Ministry of Transport announced the "2024 Legislative Work Plan of the Ministry of Transport". A person from the Legal Affairs Department of the Ministry of Transport revealed that the ministry has identified the main tasks of the 2024 transportation legislation work, including the revision of the toll road management regulations. Relevant people believe that if the toll period of highways is increased, it will have a significant boost to the long-term value of highway assets.

Huafu Securities also stated that under the premise of maintaining high and stable profits, the valuation increase of individual stocks in the highway sector will mainly depend on the reconstruction and expansion of road sections and the increase in dividend rates. If the toll policy is relaxed, it will increase the valuation level of the entire industry.

Dongxing Securities believes that the market's demand for stable returns is not a short-term change, but a long-term trend; the interest rate cut cycle further increases the safety margin of highway stocks; the performance growth brought by the expansion and renovation and the extension of the toll collection period are expected to bring a "Davis double-click" in performance and valuation. Therefore, it is expected that for a long period of time in the future, the highway sector will benefit from the upward industry cycle and the improvement of corporate governance optimization, and its investment value will continue to stand out. The highway sector, which is in the expansion and renovation cycle and has strong growth potential, has more investment value.

Editor: Peng Bo

Proofreading: Yao Yuan

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