Disclosures&DisclaimerThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.Issuerofreport:TheHongkongandShanghaiBankingCorporationLimitedViewHSBCGlobalResearchat:https://www.research.hsbc.comTHISCONTENTMAYNOTBEDISTRIBUTEDTOMAINLANDCHINAMixedtrafficnumbersforlistedexpresswaycompanies:Nationalexpressways’overalltrafficvolumesinSeptemberrose8.8%y-o-y,withpassengervehicles(PV)andtrucktrafficup9.8%yoyand6.0%yoy,respectively.In3Q19,nationalexpressways’PVandtruckvolumesincreased9.1%yoyand7.6%yoypreviously,higherthanChina’sGDPgrowthat6%yoy.However,tollrevenuegrowthfromlistedexpresswaycompaniesinSeptemberwasmixed,partlyrelatedtotheETC(E-Tolling)discountpolicyimpact,introducedfromJuly2019.Webelievethegovernment’s90%ETCpenetrationtargetisachievableandthenegativeimpactoncompanies’tollrevenuemaycontinueuntil1H20.AsofOct2019,ETCpenetrationhadreached80%or150musers,whileETCfacilityinstalmentalongtheroadshasalsobeenfullycompleted.Solidresultin3Q19helpedbynon-tollbusiness:Mostofthelistedcompaniesannouncedsolidresultsin3Q19,helpedbytheirnon-tollbusiness.ThecorebusinesstollrevenuehasbeenunderpressurefromJuly2019duetoanincreaseinusersoftheETCdiscount.Webelievethepoliciessetoutinthe“ExpresswayManagementOrdinance”arefavourabletotheindustrybutmaybedelayedto2020untilthenationalETCtargetiscompleted.MostprovinceswillkickoffhearingsfornewtariffsfortrucksinNov/DecandfinalpricingshouldbeannouncedbeforeJan2020.However,wethinktheriskfortollrevenueoutlookin2020shouldbeonthedownsidedueto:1)governmentguidancetolowerlogisticscosts;2)changingthetollsettlementfromregionaltonationalmaydelaytheprocess;and3)thedifficultyinmonitoringtheoverloadingissue.Wethinkitiscriticaltocheckthe1Q20companymonthlystatisticstoseethemagnitudeofchangetotollrevenuesunderthenewETCsystem.Investmentviews:WelikeShenzhenExpressway-HandZhejiangExpressway(bothratedBuy)duetotheirstrongearningsgrowthupsidefromotherbusinesscontributionandstabledividen...
