20180417-兴业金融证券-中国中车-01766.HK-Positive_Signs,_But_Still_Slow_11页_446kb

CRRC Corp Summary

Core Content

CRRC Corp (CRRC) is the sole rolling-stock manufacturer following the merger of CSR Corp Ltd and China CNR Corp Ltd. It offers a range of core products including locomotives, passenger carriages, freight wagons, multiple units (MUs), rapid transit vehicles, and related components. The company is expected to begin a slow recovery from a challenging 2017, driven by a strong backlog of urban rail projects.

Main Points

• Recovery Outlook: CRRC has moved past its worst year in 2017 and is expected to recover slowly.
• Growth Forecasts:
  • 3-year CAGR for revenue is forecasted at 10.8%.
  • 3-year CAGR for earnings is forecasted at 9.3%.
• Target Price (TP):
  • Maintained at NEUTRAL with a new TP of HKD7.02 (up 7% from previous TP of HKD6.70).
  • The TP is based on an FY18F P/E of 15x, which is 0.5SD below its 5-year historical forward mean.
  • DCF valuation corroborates this at HKD6.30.
• Backlog:
  • CRRC has a strong CNY243.4bn backlog.
  • Urban rail projects amount to CNY138.3bn (+33.2% YoY).
  • MU backlog is CNY50.7bn, with 320 sets of Fuxing high-speed trains slated for delivery in 2018.
• Customer Guidance:
  • Main customer, China Railway Co (CRC), guided down 2018 tenders to CNY80bn.
  • Some CRC tenders in 1Q18 exceeded this guidance, but the firm remains conservative on full-year expectations due to uneven order distribution.
• Earnings Adjustments:
  • 2018 and 2019 earnings forecasts were adjusted down by 13% and 10%, respectively, due to contract issues and slow tenders.
• Key Risks:
  • Downside: Worse-than-expected CRC orders, high-profile railway accidents, and slower-than-expected new business growth.
  • Upside: Better-than-expected expansion in the global market, faster-than-expected new business growth due to opaque disclosures, and improved margins from integration.
• Valuation Metrics:
  • FY18F P/E: 15x.
  • P/B: 1.14.
  • EV/EBITDA: 6.61.
  • Dividend Yield: 3.4%.
• Financial Highlights:
  • Recurring EPS growth for FY18F is 3.6%, and for FY19F is 14.6%.
  • Net profit margin is expected to remain stable at around 5.0%.
  • Dividend payout ratio is projected to decrease slightly from 53.4% to 38.5%.
• Capital Expenditure (Capex):
  • Capex is expected to decrease to 2.4% of sales in FY18F.
  • Capex is forecasted to remain at CNY5.462bn for FY18F through FY20F.
• Cash Flow:
  • Operating cash flow is expected to improve from FY17 to FY18F.
  • Free cash flow (FCFF) is projected at HKD6.30 per share based on DCF.
• Market Performance:
  • Current price is HKD6.58.
  • Market Cap is USD41,216m.
  • Share performance has shown mixed results over different time frames, with a YTD decline of 21.3% and a 12-month gain of 14.3%.

Key Metrics (FY18F - FY20F)

Key Drivers

• Accelerated government investments in urban rail.
• Strong overseas income outlook.
• Fast-growing new businesses.

Share Data

• Avg Daily Turnover: HKD237m / USD30.3m.
• 52-wk Price Range: HKD6.55 - HKD8.74.
• Free Float: 94%.
• Shares Outstanding: 28,699m.
• Estimated Return: 7%.

Company Profile

• CRRC is a leading player in the rolling-stock manufacturing industry.
• The company has a diversified product portfolio and a significant market presence.

Peer Comparison

• CRRC CORP LTD-H (HK listed) has a P/E of 15.5x and a 3-mth return of -17.6%.
• ZHUZHOU CRRC T-H (HK listed) has a P/B of 1.2x and a 3-mth return of -21.3%.
• CHINA RAIL GR-H (HK listed) has a P/B of 0.7x and a 3-mth return of -3.4%.
• SIEMENS AG-REG (US listed) has a P/E of 12.7x and a 3-mth return of -12.6%.
• ALSTOM (US listed) has a P/E of 19.8x and a 3-mth return of -12.8%.

Conclusion

Despite a slow recovery and some earnings adjustments, CRRC Corp is positioned to benefit from government investments in urban rail and its strong backlog. The company's TP has been raised to reflect potential future growth, but risks remain, particularly related to CRC orders and international performance. The DCF valuation supports the new TP, indicating a cautiously optimistic outlook.