20151104-DBS_Group-High_investment_momentum_21页_897kb_897kb
报告摘要
Summary of Document Content
Core Content
The document provides an analysis of the Chinese infrastructure and railway equipment sector, highlighting the positive investment momentum and the impact of the 13th Five-Year Plan on the industry. It discusses the performance of key companies, the outlook for the sector, and the role of the PPP (Public-Private Partnership) model in financing new projects. Additionally, it includes recommendations, valuation metrics, and market data for various infrastructure and railway equipment firms.
Main Points
- High-Margin Projects: Infrastructure companies are focusing on high-margin quality projects, leading to improved gross profit (GP) margins. This strategy has been particularly effective for railway equipment players.
- Government Investment: The government has accelerated the approval of new infrastructure projects, including railway lines and metro systems, with a total estimated cost of over Rmb1tn.
- PPP Model: The PPP model is expected to play a significant role in financing new infrastructure projects, reducing the financial burden on the government and supporting future development.
- Overseas Opportunities: The "China Manufacturing 2025" initiative and the "One Belt One Road" strategy are creating new opportunities for infrastructure companies, especially for CRRC in high-speed train exports.
- 3Q Performance: The sector's operating results were in line with expectations, with improvements in GP margins. However, revenue growth for construction companies was slow due to a focus on high-margin projects rather than volume.
- Interest Expense: Due to high net gearing, interest expenses increased by 20-40% in 3Q, but are expected to rise at a slower pace in the coming quarters.
- Backlog and Earnings: Companies have significant backlogs (approx. Rmb1-1.8tn), which support future earnings growth. The 4Q outlook is positive with expectations of robust new contracts and continued earnings growth.
- Valuation and Recommendations: The analyst recommends BUY on CRRC and infrastructure constructors CRCC (1186 HK) and CRG (390 HK), while downgrading CCC (1800 HK) due to limited upside. The target prices are based on historical average PE ratios and expected earnings growth.
- Low Interest Rates: A low interest rate environment is favorable for infrastructure companies, especially those with high debt levels.
Key Information
Infrastructure Construction Companies
| Company | Price (HK$) | Target Price (HK$) | Recommendation | FY15F PE | FY16F PE |
|---|---|---|---|---|---|
| China Comms. Con. - H (1800 HK) | 10.56 | 11.25 | Hold | 34,337 | 9.4 |
| China Railway Con. - H (1186 HK) | 11.76 | 13.55 | Buy | 31,520 | 9.9 |
| China Railway Group - H (390 HK) | 7.21 | 8.75 | Buy | 41,232 | 11.5 |
| China Comm. Con. - A (601800 CH) | 15.27 | 14.35 | Hold | 34,337 | 16.6 |
| China Railway Con. - A (601186 CH) | 15.63 | 15.95 | Hold | 31,520 | 16.1 |
| China Railway Group - A (601390 CH) | 12.69 | 12.65 | Hold | 41,232 | 24.6 |
Railway Equipment Companies
| Company | Price (HK$) | Target Price (HK$) | Recommendation | FY15F PE | FY16F PE |
|---|---|---|---|---|---|
| CRRC - H (1766 HK) | 9.95 | 12.25 | Buy | 56,455 | 18.3 |
| CRRC - A (601766 CH) | 14.06 | 14.55 | Hold | 56,455 | 31.6 |
| Zhuzhou CSR Times - H (3898 HK) | 50.6 | 15.9 | - | - | - |
3Q15 Performance Highlights
- Revenue and GP Margins: Companies like CCC, CRCC, CRG, and CRRC showed improvements in GP margins due to a strategic shift to high-margin projects.
- Backlog: Companies have substantial backlogs, supporting future earnings growth.
- New Contracts: The 3Q new contract flow showed signs of increase, with expectations of a strong 4Q.
Key Financial Metrics
- Total Yearly Railway Investment: Full-year target is Rmb800bn, with an achievement rate of c.48% as of the first eight months.
- PPP Projects: CRCC secured three PPP projects in H1 2015, including a tunnel project, expressway, and railway line.
- Bond Issuance: China Railway Corporation issued Rmb170bn in bonds in 2015, compared to Rmb190bn in 2014.
Outlook
- 4Q Outlook: Earnings growth is expected to improve due to government acceleration of projects and the low interest rate environment.
- Long-Term Outlook: The 13th Five-Year Plan is a critical driver for infrastructure development, especially in railway and metro systems.
- Overseas Opportunities: The "One Belt One Road" strategy and increased support for high-speed train exports are expected to boost overseas opportunities.
Conclusion
The infrastructure and railway equipment sector in China is showing positive momentum, driven by government investment and the shift to high-margin projects. The PPP model is expected to ease financing pressures, while the low interest rate environment supports earnings growth. CRRC is highlighted as a key beneficiary of the "One Belt One Road" and "China Manufacturing 2025" initiatives. The analyst recommends BUY on CRRC and infrastructure constructors CRCC and CRG, while downgrading CCC due to limited upside.
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