20180416-兴业金融证券-中国铁建-01186.HK-Stable_Growth_In_2018__11页_453kb

报告摘要

China Railway Construction Summary

Core Content

China Railway Construction Corporation Limited (CRCC) is a full-service construction company with operations in construction, survey design, consulting, manufacturing, real estate, and logistics. The company has been transitioning from its traditional railway business to higher-margin projects in the highway, real estate, and urban construction sectors. This strategic shift is expected to drive stable growth in 2018, with projected 3-year revenue and earnings CAGR of 12% and 13% respectively.

Main Points

Earnings and Revenue Growth:
- CRCC is expected to deliver strong earnings growth, with an upgrade to its 2018-2019 forecasts by 8% and 9% respectively.
- The company's recurring earnings grew by 36% in 2017, but base earnings growth was only 15% due to inventory impairment and bad debts.
- The company's gross profit margin (GPM) improved by 0.6 ppts in 2017, and the trend is expected to continue.
PPP Projects:
- CRCC has effectively managed its exposure to public-private partnership (PPP) projects, with new contracts of CNY299bn and CNY300bn in 2016 and 2017.
- In 2018, the company is guiding for CNY377bn of new PPP contracts to manage debt pressure.
- The liability-to-asset ratio dropped to 78% in 2017 from 80% in 2016, indicating improved financial health.
Valuation and Target Price:
- The target price (TP) for CRCC was revised down to HKD11.10 from HKD12.80, reflecting a lower FY18F P/E of 6x compared to the previous 9x.
- The TP is based on a discounted cash flow (DCF) valuation of HKD12.10.
Key Risks:
- Ongoing liquidity issues may limit revenue growth due to PPP project requirements.
- Limited profit growth and railway accidents are potential concerns.

Financial Highlights

Metric	Dec-16	Dec-17	Dec-18F	Dec-19F	Dec-20F
Total Turnover (CNYm)	629,327	680,981	747,468	847,522	958,116
Recurring Net Profit (CNYm)	13,849	18,868	20,878	24,074	26,932
Recurring EPS (CNY)	1.02	1.39	1.54	1.77	1.98
DPS (CNY)	0.16	0.18	0.23	0.27	0.30
Recurring P/E (x)	6.75	4.95	4.48	3.88	3.47
P/B (x)	0.71	0.63	0.56	0.51	0.45
P/CF (x)	2.52	3.68	1.96	1.86	1.61
Dividend Yield (%)	2.3	2.6	3.4	3.9	4.4
EV/EBITDA (x)	3.66	2.29	1.81	1.24	0.76
Return on Average Equity (%)	11.5	11.4	12.2	12.8	13.0
Net Debt to Equity (%)	18.0	net cash	net cash	net cash	net cash
Our vs Consensus EPS (adjusted) (%)	-	-	21.8	25.1	40.0

Share Data

Metric	Value
Avg Daily Turnover (HKD/USD)	126m/16.1m
52-wk Price Low/High (HKD)	7.86 - 11.2
Free Float (%)	44
Shares Outstanding (m)	13,580
Estimated Return	29%

Shareholders

Shareholder	Percentage
CRCCC	55.7

Share Performance

Period	YTD	1m	3m	6m	12m
Absolute	-5.1	2.5	-7.0	-16.4	-22.9
Relative	-8.1	-5.0	-5.1	-24.6	-49.9

Valuation Basis

P/E: The company's P/E ratio is expected to decrease further, with the TP based on a 6x P/E for FY18F.
Key Drivers: Government FAI investments, the One-Belt One-Road initiatives, and PPP expansion.
Key Risks: Higher-than-expected margins for infrastructure investment, faster-than-expected project execution, and higher-than-expected PPP margins.

Peer Comparison

Company	Ticker	Price	Mkt Cap (US$m)	3-mth Avg T/O (US$m)	PER Hist (x)	PER FY1 (x)	PER FY2 (x)	EPS FY1 YoY%	EPS FY2 YoY%	3-Yr EPS CAGR (%)	PEG (x)	Div Yld Hist (%)	Div Yld FY1 (%)	P/B Hist (x)	P/B FY1 (x)
CHINA RAIL CN-H	1186 HK	8.60	20,512	17.4	7.5	6.6	5.7	14.9	17.6	15.4	0.4	2.3	3.0	0.6	0.6
HSI	-	28,225	-	-	13.1	12.6	11.5	4.0	9.7	8.3	1.5	3.6	3.6	1.3	1.3
CSI300	-	4,016	-	-	16.5	15.4	13.4	7.2	14.6	12.2	1.3	1.8	1.9	2.0	1.9
Sector Avg (Infra)	-	-	-	-	14.1	12.4	9.9	23.2	19.2	13.5	0.8	3.0	4.6	1.1	1.0
CHINA RAIL GR-H	390 HK	5.73	25,202	15.1	9.3	7.2	6.3	14.0	17.3	35.5	0.3	1.8	2.6	0.7	0.7
CHINA COM CONS-H	1800 HK	8.43	29,700	25.9	7.5	6.9	5.2	32.6	2.3	35.5	0.5	2.5	3.1	1.3	1.1
CHINA STATE CONS	3311 HK	10.16	6,535	384.7	8.0	6.9	6.1	16.8	12.7	13.3	0.5	2.5	3.1	1.3	1.1
CHINA MACHINER-H	1829 HK	4.39	2,307	19.5	17.6	15.4	12.7	14.0	21.9	20.0	0.8	0.2	N/A	1.7	1.5
Average	-	-	-	-	11.0	9.9	8.6	11.2	14.2	13.5	0.8	1.4	2.2	1.1	1.1

Key Metrics

Metric	Dec-16	Dec-17	Dec-18F	Dec-19F	Dec-20F
Revenue Growth (%)	4.8	8.2	9.8	13.4	13.0
Recurrent EPS Growth (%)	-11.0	36.2	10.7	15.3	11.9
Gross Margin (%)	9.2	9.2	9.3	9.3	9.2
Operating EBITDA Margin (%)	5.4	5.8	5.9	6.4	6.5
Net Profit Margin (%)	2.2	2.4	2.6	2.7	2.6
Dividend Payout Ratio (%)	15.5	15.2	16.5	16.3	16.2
Capex/Sales (%)	4.5	4.2	3.9	3.4	3.1
Interest Cover (x)	4.02	9.52	8.27	9.40	10.41

DCF Valuation

Metric	2018F	2019F	2020F	TV
EBIT (CNY mn)	28,755	32,965	33,954	-
Tax Rate	20%	20%	20%	-
EBIT*(1-Tax)	23,004	26,372	27,163	-
Depreciation	13,686	19,470	20,055	-
Change in Working Capital	9,815	3,093	3,403	-
Capex	-29,231	-29,231	-32,154	-
FCF	17,273	19,704	18,466	154,300
Discount Factor	1.10	1.21	1.33	1.60
PV of FCFF	15,715	16,309	13,905	96,166
Present Equity Value	136,454	-	-	-
DCF Value per Share (HKD)	10.0	-	-	-
Assumptions	-	-	-	-
WACC	9.9%	-	-	-
Risk-Free Rate	3.5%	-	-	-
Beta	1.3	-	-	-
Market Return	12%	-	-	-
Cost of Equity	14.3%	-	-	-
Cost of Debt	7.0%	-	-	-
Debt/(Debt+Equity)	60%	-	-	-
CNY/HKD	1.2	-	-	-

Conclusion

CRCC is expected to maintain a strong growth trajectory in 2018, driven by its transition to higher-margin projects. Despite concerns over PPP risks and a tighter credit market, the company's strategic initiatives and solid financial position support its continued performance. The analyst maintains a 'Buy' rating with a reduced target price of HKD11.10, based on the updated valuation and financial forecasts.

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