Fewer negatives in 2009
􀂄 We expect fewer negatives in 2009 to affect toll road traffic growth
While we believe the macro economic slowdown will lower China’s organic road
traffic growth in 2009, we expect fewer road-specific negative factors, such as
traffic diversions and road widening work, than in 2008. Taking into account these
factors, as well as fuel price cuts, we forecast 1% aggregate traffic growth—only
slightly down on 2.2% YoY growth in 2008.
􀂄 Stable earnings growth and high dividend yields are key attractions
With almost flat traffic growth and relatively stable margins, we forecast aggregate
EPS growth of 3% and 7% YoY in 2009 and 2010, respectively, for the toll road
companies we cover. Average A- and H-share dividend yields for the sector were
3.2% and 6.0%, respectively, in 2008, above the average yields of 1.9% and 3.1%
for the transportation sector.
􀂄 We prefer stocks with earnings drivers and limited downside risk
We prefer companies with: 1) short- and long-term earnings growth drivers, such
as rising traffic growth and newly acquired profitable road assets; and 2) attractive
valuations with negative factors reflected in the share price, thus limiting downside
risk. We are negative on stocks with high gearing and low dividend yields, which
suggest a weak risk/return profile.
􀂄 Top picks: Anhui Expressway A and H, and Shandong Expressway
We change our earnings forecasts for all companies under our coverage. Our top
sector picks are Anhui Expressway and Shandong Expressway. We upgrade our
rating on Anhui Expressway-H from Neutral to Buy; downgrade Zhejiang
Expressway and Hebei Chutian Expressway from Buy to Neutral; and downgrade
Fujian Expressway and Shenzhen Expressway-H from Neutral to Sell.

Contents page
Summary and investment case 3
Fewer traffic negatives in 2009 5
— 2009 organic traffic growth to decelerate..............................................................5
— Fewer road specific negative factors in 2009........................................................7
Stable growth in 2009E 13
— Toll road tariffs unlikely to fall .............................................................................13
— Relatively stable profit margin ............................................................................14
— Healthy balance sheet and low financial risk ......................................................15
— Potential acquisition and BOT projects...............................................................15
Firm valuation support 17
Buy ideas: Anhui and Shandong 20
Company updates 21
— Anhui Expressway .............................................................................................21
— Shandong Expressway.......................................................................................23
— Zhejiang Expressway ........................................................................................24
— Jiangsu Expressway ..........................................................................................25
— Hebei Chutian Expressway ................................................................................26
— Ganyue Expressway ..........................................................................................29
— Shenzhen Expressway ......................................................................................30
— Fujian Expressway .............................................................................................31