Executive Summary

Qilu Expressway Company Limited has released its 2025 Annual Report detailing significant operational changes, financial performance, and strategic initiatives. The report covers a period of critical transformation for the company, with major developments in digitalization, capital structure, and business expansion. Key points for investors include a notable decline in revenue, substantial increases in finance costs, and the company’s dividend policy. Several items in the report are of a price-sensitive nature and may impact share value, including changes to dividend distributions, risk exposures, and the abolition of the Supervisory Committee.

Key Financial Highlights

• Revenue: RMB 2,374.6 million, a sharp decrease from RMB 7,021.8 million in 2024.
• Profit Attributable to Owners: RMB 382.9 million, down 20.98% year-on-year.
• Gross Profit: RMB 819.2 million, an increase from RMB 740.6 million in 2024, despite lower revenue.
• Finance Costs: RMB 274.6 million, up 276.93% from the previous year, due to the expensing of loan interest for the Jihe Expressway R&E Project.
• Basic/Diluted Earnings Per Share: RMB 0.18, compared to RMB 0.23 in 2024.
• Gearing Ratio: 63.21%, up from 63.07% in 2024, indicating increased leverage.
• Cash and Cash Equivalents: RMB 229.5 million, up from RMB 216.7 million in 2024.

Dividend Announcement

The Board has proposed a final dividend of RMB 0.12 (tax inclusive) per share, totaling RMB 240 million, subject to shareholder approval at the upcoming AGM on 26 June 2026. This is significant for shareholders, as the company expects to maintain a dividend payout ratio of 60%–70% of annual distributable profits, unless major investments or acquisitions arise. The dividend will be paid in RMB for H-shareholders through “Full Circulation” and in Hong Kong dollars for other shareholders, with the exchange rate determined by the PBOC’s average middle rate prior to declaration. The dividend payment is scheduled for 31 August 2026.

Strategic Initiatives and Transformation

• Completion of the first phase of digital transformation, entering a new stage of digital and intelligent empowerment across the business.
• Integration of business and finance, with expanded financing channels and strategic synergy capabilities.
• Successful completion and full two-way operation of the Jihe Expressway R&E Project, impacting depreciation and finance costs.
• Strengthened risk management and corporate governance, including the abolition of the Supervisory Committee and transfer of its responsibilities to the Audit Committee.
• Ongoing cost reduction, management reform, and process optimization to boost profitability and resiliency.
• Active expansion into external markets, shifting from passive to proactive, market-oriented strategies, including roadshows and investor communication upgrades.

Corporate Governance and Board Structure

The report details several governance enhancements, including:

• Board reorganization, with 15 members including 5 independent non-executive directors.
• Special committees for audit, remuneration, nomination, and strategy, with delegated powers for oversight and compliance.
• Compliance with the Corporate Governance Code, and ongoing review of board performance and effectiveness.
• Adoption of a code of conduct for securities transactions, with full compliance by all directors.

A major governance change is the abolition of the Supervisory Committee (effective December 2025), with its duties absorbed by the Audit Committee—a move to streamline oversight and enhance board accountability.

Risk Factors and Outlook

• Policy Risk: As toll rates are subject to government regulation, there is no assurance that requests for toll adjustments will be approved promptly. The company is proactively engaging with authorities to mitigate policy risks.
• Market and Competition: The company is exposed to changes in traffic volume and competitive pressures, responding with integrated marketing and service improvements.
• Management Risk: Natural disasters and extreme weather pose operational risks. The company emphasizes preventive maintenance, asset diversification, and close coordination with authorities to ensure road safety and operational continuity.
• Financial Risk: The increased gearing ratio and higher finance costs may affect future profitability and cash flow flexibility.

The company aims to transition into a “first-class domestic integrated expressway service provider,” focusing on operational efficiency, network expansion, and new business models. The Six New Breakthroughs strategy targets quality, transformation, innovation, risk control, performance, and party-building.

Continuing Connected Transactions

The company engaged in continuing connected transactions with annual caps for the General Sales Framework Agreement set at RMB 500 million for 2025 and 2026. Actual transactions in 2025 amounted to RMB 178.9 million, well below the cap. The company’s independent auditor, ShineWing, reviewed these transactions and issued an unqualified opinion, confirming compliance with Listing Rules and that no caps were exceeded. No material related party transactions were flagged as problematic.

Other Noteworthy Items

• Donations to public welfare totaled RMB 20,000 in 2025.
• No significant subsequent events have occurred after the reporting period.
• There have been no share repurchases, sales, or redemptions during the year, and the public float remains above 25%.
• Ernst & Young retired as the company’s auditor, with ShineWing Certified Public Accountants appointed in their place.

Price-Sensitive Information and Potential Impact on Share Value

• Significant revenue decline and increased finance costs may raise concerns about earnings quality and future dividend sustainability, potentially impacting the share price negatively.
• The proposed cash dividend, while generous relative to profits, may support the share price if approved, especially given the company’s stated payout ratio.
• The abolition of the Supervisory Committee and centralization of oversight in the Audit Committee is a governance overhaul that may influence investor perception of board effectiveness and risk controls.
• Ongoing digital transformation and expansion into new markets signal long-term growth ambitions, which may positively influence the company’s valuation if execution is successful.

Conclusion

Qilu Expressway is at a crossroads, balancing the challenges of declining revenue and higher finance costs with an ambitious program of digital transformation, governance reform, and business expansion. Investors should closely monitor the AGM for dividend approval, pay attention to the evolving risk landscape, and consider the strategic direction as the company strives to deliver sustainable value in the new five-year plan period.