20180827-中国银河国际证券-中国中车-01766.HK-1H18_results_in_line,turning_more_positive_on_CRRC_s_earnings_growth_outlook_6页_1mb

CRRC [1766.HK] Summary

Core Content

CRRC (China Railway Rolling Stock Corporation) reported its first-half 2018 (1H18) results and held a post-results analyst briefing on 24 August 2018. Despite a 2.6% year-over-year (YoY) decline in total revenue, the company saw a 12.2% YoY increase in net profit due to margin expansion. The results were in line with market expectations, and management expressed optimism about the growth potential of the core railway business in the coming quarters.

Main Points

• 1H18 Performance:

  • Total revenue decreased by 2.6% YoY.
  • Net profit increased by 12.2% YoY, driven by improved product mix and efficient cost control.
  • Gross profit margin expanded by 1.4 percentage points (ppt) to 22.8%.
  • Net profit margin expanded by 0.5ppt to 5.8%.
  • The core railway business saw a 5.7% YoY revenue growth, with locomotive and multiple unit (MU) product segments leading the increase.
  • Selling expenses as a percentage of sales fell to 3.0% from 3.2%, while administrative costs rose to 12.4% from 11.9%.

• Outlook for 2019-2020:

  • Accelerating railway investment and freight business reforms are expected to drive growth in the core railway business.
  • Railway freight volume is projected to grow by 30% from 2017 to 2020, creating additional demand for locomotives and freight wagons.
  • Management expects locomotive and freight wagon orders in the second half of 2018 to help meet the freight business growth target.

• Margin Expansion:

  • Continued margin expansion is anticipated due to an improving revenue mix and business restructuring efforts.
  • The company plans to streamline operations and scale down lower-margin or loss-making segments.

• Investment Highlights:

  • The analyst maintains a BUY rating.
  • The target price was slightly reduced to HK$8.90 from HK$9.10, based on a target PER multiple of 16x and considering the RMB depreciation effect.
  • The company's share price is expected to rerate due to the positive outlook on earnings growth.

Key Financials (1H18)

Revenue Breakdown (YoY)

Financial Outlook (2018-2019E)

Valuation Metrics

Balance Sheet Highlights

Cash Flow Highlights

Summary of Key Financial Trends

• Revenue in 1H18 was slightly below expectations, but net profit grew due to margin expansion.
• The core railway business is expected to benefit from railway investment and reforms, leading to earnings growth in 2018 and 2019.
• Margin expansion is anticipated to continue, supported by improved revenue mix and restructuring.
• The analyst's outlook remains positive, with a BUY rating and a slightly reduced target price.
• Valuation metrics such as PER and EV/EBITDA indicate potential for rerating in the coming year.