Dongxing Securities: Highway sector allocation focuses on risk avoidance logic dividend rate indicators and dividend ratio indicators are becoming more important

The Zhitong Finance App learned that Dongxing Securities released a research report saying that although the overall performance growth rate of the highway industry in the past two years has been affected by the industry cycle, the highway sector itself has maintained good performance stability and safe-haven functions, the sector's performance stability is strong, and the performance stability of high-profit companies will be relatively higher. The effectiveness of the dividend rate and dividend ratio indicators has improved markedly, and the sector's safe-haven logic has been strengthened. The bank expects road companies that meet the characteristics of “high dividend ratio+low uncertainty” to remain strong.

Dongxing Securities's main views are as follows:

Fundamentals and valuation: The valuation center remains at a high level, and profits are under slight pressure during the capital expenditure period

The highway sector is currently still in the capital expenditure cycle (renovation and expansion cycle), which is determined by the industry's charging period. Since '23, due to a combination of factors such as the decline in truck revenue growth and vehicle diversion due to road renovation, expansion, closure and construction, the highway industry's overall withheld net profit level has declined slightly, falling 3.0% and 4.0% year-on-year in '24 and '25, respectively. Although the overall performance growth rate of the highway industry in the past two years has been affected by the industry cycle, the highway sector itself has maintained good performance stability and safe-haven functions, the sector's performance stability is strong, and the performance stability of high-profit companies will be relatively higher.

Judging from sector valuations, the highway sector's valuation peaked in the first half of '25, and there were subsequent revisions, but the valuation was still higher than in '23. The bank believes that the market still recognizes the characteristics of the highway sector as an environmental beneficiary stock with low interest rates; however, interest rates on treasury bonds are currently relatively stable, so it will not increase its holdings for this reason. However, after the valuation was raised to the current level, investors placed higher demands on the dividend rate of individual stocks and the stability of future performance.

The effectiveness of the dividend rate and dividend ratio indicators has improved markedly, and the sector's safe-haven logic has been strengthened

Through analysis of sector trends, the bank believes that since the 3rd quarter of last year, the core logic of allocating highway stocks has returned to absolute returns and risk hedging. The evolution of individual stock trends in the first half of this year is a favorable confirmation of this conclusion.

1. The increase in individual stock prices since the beginning of the year is clearly positively correlated with the dividend ratio

The bank found that there was a clear positive correlation between the stock price increases of listed expressway companies since the beginning of the year. For example, Guangdong Expressway A, Shandong Expressway, and Wantong Expressway, which are the top three targets of increase since this year, the dividend ratios have stabilized at 70%, 60%, and 60%, respectively, for many years. The bank believes that the market's pursuit of a high dividend ratio is essentially the market's pursuit of high certainty. Currently, the expressway sector is in the midst of a renovation and expansion cycle. Large capital expenses have led to increased uncertainty about the performance of some companies. Whether an enterprise can maintain a stable dividend amount and dividend ratio has become an effective measure of the company's sufficient cash flow.

As the market gives long-term positive feedback to high-dividend companies at the stock price level, road companies' willingness to pay dividends has continued to increase in recent years, and dividend stability and sustainability are leading among A-shares. Among A-share stocks, there are 4 expressway companies that have a dividend ratio higher than 60% for 3 consecutive years, and a total of 8 companies have a dividend ratio higher than 50% for 3 consecutive years. In addition, there are 4 companies with a marked increase in dividend ratios in 25 years compared to 24, and the trend of increasing industry dividend ratios is quite obvious.

2. Since the third quarter of last year, the dividend rate level of key listed companies has shown a trend of gradually leveling off

Another interesting change in the sector since this year is that the dividend rates of key listed companies are gradually leveling off. Prior to 25Q3, there were long-term differences in the dividend rate levels of key companies in the sector. For example, the dividend rate of the Ninghu Expressway was about one point lower than the Shandong Expressway for a long time. However, after 25Q3, this gap was quickly bridged. The dividend rates of several leading high-dividend companies moved closer to the 4%-4.5% range, and the dividend rate difference narrowed significantly.

The bank believes that this may be due to the continued increase in the share of institutional investors among investors in the highway sector, and when institutional investors allocate the sector with the logic of absolute profit or risk aversion, they will have more stringent requirements for the dividend rate of the relevant individual stocks. Regardless of whether this is the actual reason or not, what is certain is that dividend ratio indicators have increased in importance since Q3 last year. In the long run, the difference between the dividend rate level of a listed company and the yield on treasury bonds is still an indicator that needs to be closely observed. In a low interest rate environment, targets that can provide stable and high dividends are still suitable for allocation by investors seeking absolute returns.

Investment advice: Road companies that meet the characteristics of “high dividend ratio+low uncertainty” are expected to remain strong

In terms of individual stock allocation, the bank expects companies that meet the “high dividend ratio+low uncertainty” to receive more attention from the market for some time to come. The bank focuses on recommending the Wantong Expressway. Other relevant targets include individual stocks with high dividend ratios such as Guangdong Expressway A, Shandong Expressway, and China Merchants Highway, as well as the Ninghai-Shanghai Expressway, which has a stable dividend amount.

Risk warning: changes in industry policies, declining macroeconomic growth, road renovation and expansion expenses exceeding expectations, road network diversion exceeding expectations, etc.