Zhejiang Expressway has a three-pronged strategy to rebound from its falling profitability: acquire more expressways - financed possibly by an A-share listing - and expand its road services and securities units. 'We want to diversify our business,' said Chen Jisong, who was appointed the chairman last month. 'We plan to reduce our dependence on expressways. Too much focus on highways is not good for us.' Zhejiang Expressway would lower its market share of expressways in Zhejiang province from 74 to 70 per cent in the future by selling some lower-quality highways, he said. Construction and land costs had doubled in the past 10 years, so returns on new expressway projects were not attractive, KGI Securities analyst Vincent Lee said in a report. 'Zhejiang Expressway management said they will look at projects with internal rate of return of 8 per cent or above, which is low.' Shenzhen Expressway, a Hong Kong-listed operator of expressways in Guangdong province, will not look at acquiring expressways with an internal rate of return of less than 10 per cent, an analyst said. Zhejiang Expressway also planned to expand its services business - including convenience stores and petrol stations on highways - in Zhejiang province and extend its service business to other provinces, said Mr Chen. In addition, Zhejiang Expressway planned to expand its securities business into more Chinese cities, he said. The company owns a majority stake in Zheshang Securities, which has a presence in several cities including Shanghai and Beijing. 'It makes sense to diversify into services,' said Nomura analyst Jim Wong. 'If you look at expressways around the world, [petrol station and convenience store] services [are] a profitable business.' Zhejiang Expressway's revenue last year fell 10.1 per cent to 6.32 billion yuan (HK$7.17 billion), of which services made up 26 per cent, securities accounted for 18 per cent and toll road revenue formed 55 per cent. 'In the long term, if you assume the A-share market will generally rise, the contribution of securities to Zhejiang Expressway's business will be more prominent,' said an analyst. 'Securities will be more important than services. Zhejiang Expressway will be a combined stockbroker and toll-road company.' The firm incurred a 316.21 million yuan loss from the proprietary stock trading of subsidiary Zheshang Securities, last year, a major factor in Zhejiang Expressway's 21.7 per cent net profit slide to 1.89 billion yuan. The brokerage had since cut its exposure to stocks and now owned mostly bonds, said Zhejiang Expressway chief financial officer Wu Junyi. Other major reasons for Zhejiang Expressway's drop in revenue and profit last year were the global financial crisis and traffic diversion to the Hangzhou Bay Bridge and Hangpu Expressway, said Mr Chen. The bridge and expressway in Zhejiang compete directly for traffic with the firm's two core expressway assets. The Hangzhou Bay Bridge opened to passenger vehicles in May last year and to trucks in October, and the Hangpu Expressway opened to traffic in February that year. For this year, Citigroup analyst Jenny Zhen forecast Zhejiang Expressway's net profit would fall 13.5 per cent amid continuing traffic diversion and lower contribution from securities. Bloomberg said the consensus of 20 analysts surveyed was an 8.5 per cent drop in net profit to 1.73 billion yuan this year. 'It will also be a difficult year in 2009,' admitted Zhejiang Expressway director Zhan Xiaozhang. The firm's parent, Zhejiang Communications Investment Group, could inject two expressways into the Hong Kong-listed subsidiary within roughly two years, said Mr Chen, who estimated each expressway would cost 8 billion yuan to 20 billion yuan.