According to Zhito Finance APP, China Merchants released a research report stating that the situation for buses in Q4 2024 is expected to be consistent with the first three quarters, maintaining passenger transport year-on-year basically flat. The situation for trucks in Q4 2024 is expected to see a narrowing of the decline compared to Q3. Looking forward to 2025, it is expected that with domestic demand stabilizing and recovering, passenger transport is likely to achieve a slight year-on-year increase, and freight transport is expected to remain flat or see a slight increase year-on-year. Highways have strong performance stability, high and steady dividend rates. Under the expectation of interest rate cuts in 2025, highways have strong allocation value as core dividend assets. Key symbol recommendations: Guangdong Provincial Expressway Development (000429.SZ), Jiangsu Expressway (600377.SH), Anhui Expressway (600012.SH), and China Merchants Expressway Network Technology Holdings (001965.SZ).

The main points of China Merchants Securities are as follows:

In 2024, the highway sector shows significant excess returns compared to the CSI 300 Index.

Year-to-date, the Shenwan Highway Index has risen 26.8%, outperforming the CSI 300 Index by 12.5 percentage points. In terms of historical cumulative gains, the highway sector has shown an upward trend over the past decade (from January 2, 2014, to December 18, 2024), with a cumulative increase of 116%, while the cumulative increase of the CSI 300 Index during the same period was 68.9%, significantly outperforming.

Since this year, the periods of excessive returns for the highway sector compared to the CSI 300 Index have been mainly in Q1, Q2, and Q3 (excluding the last week). In Q1 (January 2, 2024, to March 29, 2024), the highway sector increased by 6.2%, with an excess return of 1.7 percentage points compared to the CSI 300 Index; In Q2 (April 1, 2024, to June 28, 2024), the highway sector declined by 0.7%, with an excess return of 3 percentage points; In Q3, excluding the last week (July 1, 2024, to September 20, 2024), the highway sector declined by 4.6%, with an excess return of 3.4 percentage points. Mainly influenced by market style factors, the large cap was relatively pessimistic early in 2024, and there was an increased preference for high-dividend assets. After entering Q2, the market style continued to drive, resulting in the general decline of large caps, while insurance funds' attention to high-dividend assets further increased.

In 2024, the overall passenger transport performance in the highway industry is basically flat, with weak freight transport, while improvements in both passenger and freight transport are expected in 2025.

In terms of the Industry, the passenger volume of the expressway sector was overall flat year-on-year in the first three quarters due to rain and snow weather and a high comparison base; influenced by a weak macro environment, freight volume decreased slightly year-on-year. Regarding the companies, due to reconstruction and expansion and changes in the road network structure, some companies experienced a decrease in toll revenue. In Q1-3 of 2024, Jiangsu Expressway's toll revenue increased by 0.4% year-on-year, Anhui Expressway's toll revenue decreased by 7.6% year-on-year, mainly due to the impact of the Xuan Guang expansion, Shenzhen Expressway Corporation's toll revenue (controlling road assets) decreased by about 8.5% year-on-year, mainly due to the withdrawal of the Yichang project, while Jiangxi Ganyue Expressway's toll revenue increased by 0.5% year-on-year.

China Merchants expects that the passenger bus situation in Q4 of 2024 will remain consistent with the first three quarters, keeping passenger transport basically flat year-on-year, and the freight situation in Q4 is expected to see a narrowing of the decline compared to Q3. Looking ahead to 2025, it is anticipated that with domestic demand stabilizing and recovering, passenger transport is likely to see a slight year-on-year increase, while freight transport is expected to remain flat or see a slight increase year-on-year.

Investment suggestion: Absolute returns still offer allocation opportunities. On one hand, next year is determined to be a rate cut cycle; on the other hand, relative returns are influenced by market styles, and there is uncertainty in valuation uplift. Therefore, it is suggested to strengthen allocation for absolute returns. In the expressway sector, it is expected that next year, with domestic demand stabilizing and recovering, passenger transport could see a slight year-on-year increase, while freight transport could remain flat or see a slight increase year-on-year, indicating room for fundamental improvement.

In terms of key symbols, currently recommend Guangdong Provincial Expressway Development (000429.SZ), whose main operation is stable, and the impact of Guangzhu East diversion is lower than expected. At the same time, the company maintains a 70% dividend payout ratio, which leads to a 4.1% dividend yield for 2024 based on the latest closing price; recommend Jiangsu Expressway (600377.SH), with stable main operations, and the absolute value of dividends brings stable returns, corresponding to a 3.2% A-shares dividend yield for 2024 based on the latest closing price; recommend Anhui Expressway (600012.SH), as the Xuan Guang expansion is nearing completion, and it is important to continuously monitor the traffic situation after the expansion in January, corresponding to a 3.5% A-shares dividend yield for 2024 based on the latest closing price; recommend China Merchants Expressway Network Technology Holdings (001965.SZ), as earlier mergers and acquisitions continue to yield benefits, and the issuance of Bo Fu REITs is expected to generate one-time asset disposal gains, corresponding to a 3.4% dividend yield for 2024 based on the latest closing price (considering perpetual bond interest).

Risk warning: Macroeconomic growth lower than expected, reconstruction and diversion impacts exceeding expectations, and changes in highway toll policies.