CRRC Times Electric [3898.HK] MU business remains a drag on both earnings and share price performance We had a discussion with CRRC Times Electric reg

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1 中车时代电气 [3898.HK] 动车组业务仍将拖累盈利及股价表现我们与中车时代电气管理层了解了公司年初至今的业务表现管理层对其动车组产品业务 2017 年的增长前景维持负面看法我们预期机车产品业务 2017 年的复苏强劲, 然而动车组产品业务的收入应会下跌我们轻微调整盈利预测, 预期 2017 年及 2018 年的盈利同比分别增长 9.6% 及 13.7% 我们预期公司 2017 年上半年的净利润同比仅增长 3.9%, 下半年的盈利增速有望加快, 主要由于去年基数较低维持个股持有评级, 下调目标价 7% 至港元, 目标价是基于 13 倍的动态市盈率 ( 之前的目标价基于 15 倍的动态市盈率 ), 与 2011 年下半年因动车撞车意外带来中铁采购动车组的不确定性时的市盈率相当个股现时股价相当于 2017 年 12.6 倍的市盈率我们相信随着中铁总于 2017 年底或 2018 年进行业务改革, 铁路设备的需求有望提升, 这将影响中车时代电气的股价上涨空间中国铁路业持有 2017 年 7 月 7 日收盘价 : 港元 (2017 年 7 月 6 日 ) 目标价 : 港元 (+10.6%) 投资亮点年铁路设备需求增长前景不明确 : 中铁总目标 2017 年铁路固定资产投资同比持平铁路设备方面, 由于中铁总货运交通业务的增长复苏,2017 年机车及货车分部的需求都出现强劲复苏 2017 上半年中铁总就 586 台机车和 40,000 台货车进行对外招标, 对比 2016 年分别为 202 台和 25,279 台但其动车组采购量将在 2017 年同比下降超过 30%, 因为 1) 新增铁路路线减少 ;2) 铁路并未按照预期提升高铁的运营密度我们预期新增的铁路路线数量将在 2018 年增加但铁路设备的需求增长, 尤其对动车组而言, 将更加依赖于中铁总在上调运费增加高铁运营密度及扩展货车业务三方面的业务改革, 否则,2018 年的设备需求增长将相当有限股价表现 Turnover(HK$m, rhs) Price(HK$) 1,800 1,600 1,400 1,200 1, 年动车组产品将拖累盈利增长 : 公司机车产品期望在 2017 年同比增长超过 70%, 回到 2015 年的水平而随着 2017 年中铁总动车组采购量下降, 我们预计动车产品收入将同比下跌超过 20% 目前为止, 中铁总只就 276 台动车组进行招标, 对比 2016 年为 467 台随着 2018 年铁路路线增加, 我们预期公司动车组业务的增长将复苏但 2018 年核心动车组和机车业务的收入增长幅度仍主要取决于铁路业务改革, 而就现阶段而言, 改革仍处于不确定状态盈利增长前景优于中车 : 中国标准高铁在 6 月份开始运行, 意味着今后中铁总大部分的动车招标都将用于此标准的高铁这也意味着中车时代电气可以扩展其动车组产品供应到原来北车下属的动车生产厂家因此, 尽管中铁总的动车组采购量没有明显增加, 但由于有机会取得市场份额收益, 公司的动车组业务仍有增长机会另外, 其维修和置换收入占核心铁路业务的较大部分, 这也代表公司核心铁路业务的增长前景较中车为佳维持持有评级 : 我们维持该公司的持有评级, 目标价降低 7% 至港元, 基于较低的 13 倍目标市盈率, 对比之前为 15 倍 Y/E Dec E 2018E Turnover 收入 ( 百万元人民币 (RMB ) m) 12,676 14,800 14,658 16,201 18,359 Recurring 经常性净利润 net ( 百万元人民币 profit (RMB ) m) 2,395 2,965 2,904 3,183 3,618 Net 净利润率 margin (%) (%) 18.9% 20.0% 19.8% 19.6% 19.7% Recurring 经常性每股盈利 EPS ( 人民币 (RMB) ) % 百分比变动 change 52.9% 23.8% -2.1% 9.6% 13.7% PER(x) 市盈率 ( 倍 ) 市净率 ( 倍 ) PBR(x) 倍 ) EV/EBITDA(x) 来源 : 公司, 中国银河国际证券研究部预测市值亿美元已发行股数 5.47 亿股核数师 Ernst & Young 自由流通量 100.0% 52 周交易区间港元三个月日均成交量 1.3 亿美元中国中车股份有限公司主要股东 (50.2%) 来源 : 公司, 彭博邹敏分析员 (852) kellyzou@chinastock.com.hk 王志文研究部主管 (852) cmwong@chinastock.com.hk 1

2 CRRC Times Electric [3898.HK] MU business remains a drag on both earnings and share price performance We had a discussion with CRRC Times Electric regarding its YTD business performance. Management maintains its negative view on its MU product business growth outlook in We expect to see strong recovery in its locomotive product business in 2017, but its MU product business will see a revenue decline in We fine tuned our earnings forecast, expecting its earnings to grow 9.6% and 13.7% YoY in 2017 and 2018, respectively. We expect the Company to deliver net profit growth of only 3.9% YoY in 1H17. We expect its earnings growth to accelerate in 2H17 due to the low-base effect. We maintain our Hold rating on CRRC Times Electric and cut our target price (TP) by 7% to HK$ Our TP is based on a lower target multiple of 13x forward PER vs. our previous target multiple of 15x. Our target multiple is in line with its trading multiple back in 2H11 after the tragic high-speed train accident caused uncertainty in CRC s MU procurement. The stock is currently trading at 12.6x 2017E PER. We believe its share price upside depends on the likely demand release of railway equipment as a result of CRC s business reforms in late 2H17 or Investment Highlights Uncertain railway equipment demand growth outlook in : CRC s target is for railway FAI to remain flat YoY in For railway equipment, there has been a strong demand growth recovery in the locomotive and freight wagon segment in 2017, led by a growth recovery in CRC s freight transportation business. CRC sent out tenders for 586 locomotive units in 1H17 vs. 202 in It also sent out tenders for 40,000 units of freight wagons in 1H17 vs. 25,279 in But CRC s MU procurement volume will fall over 30% YoY in 2017 due to 1) a decrease in new rail line additions; and 2) delayed railway reforms to raise highspeed train operation density. We expect to see increases in new line additions in But demand growth for railway equipment, especially for MUs, will increasingly rely on CRC s business reforms in the areas of passenger tariff hikes, high-speed train operation density increases and freight business expansion. Otherwise we see rather limited equipment demand growth in MU product business to dampen earnings growth in 2017: We expect the Company s locomotive product business to grow more than 70% YoY in 2017, approaching the level in With falling MU procurement by CRC in 2017, we expect the Company s MU product business revenue to decline over 20% YoY in So far, CRC has sent out tenders for only 276 units of MUs for delivery in 2017 vs. 467 in 2015 for delivery in With increases in new rail line additions in 2018, we expect its MU product business growth to likely recover. But the magnitude of the revenue growth of its core locomotive and MU product business in 2018 still relies heavily on railway s business reform, which remains uncertain at the current stage. More resilient earnings growth outlook than CRRC: The launch of the China standard highspeed train in June suggests that the majority of the MU tenders from CRC in the future will be for this new China standard high-speed train. This suggests CRRC Times can expand its MU product offerings for the MU segment produced by the previous CNR MU production entities. Hence, even if there is no significant growth in CRC s MU purchases, the Company will still enjoy growth opportunities from a potential market share gain for its MU business. In addition, its maintenance and replacement revenue accounts for larger proportion of its core railway business segment, which implies a more resilient growth outlook for its core railway business than that for CRRC. Maintain Hold on CRRC Times Electric: We maintain our Hold rating on CRRC Times Electric. We cut our TP by 7% to HK$ Our TP is based on a lower target multiple of 13x forward PER vs. our previous target multiple of 15x. Y/E Dec E 2018E Turnover (RMB m) 12,676 14,800 14,658 16,201 18,359 Recurring net profit (RMB m) 2,395 2,965 2,904 3,183 3,618 Net margin (%) 18.9% 20.0% 19.8% 19.6% 19.7% Recurring EPS (RMB) % change 52.9% 23.8% -2.1% 9.6% 13.7% PER(x) PBR(x) EV/EBITDA(x) HOLD Close: HK$39.15 (July 6, 2017) Target Price: HK$43.30 (+10.6%) Price Performance Market Cap Shares Outstanding Auditor US$5,894m 547m Ernst & Young Free Float 100.0% 52W range 3M average daily T/O HK$ US$13m Major Shareholding CRRC ZELRI (50.2%) Sources: Company data, Bloomberg Kelly Zou Analyst (852) kellyzou@chinastock.com.hk Wong Chi Man, CFA Head of Research (852) China Railway Sector Turnover(HK$m, rhs) cmwong@chinastock.com.hk July 7, 2017 Price(HK$) 1,800 1,600 1,400 1,200 1,

3 Key financials CRRC Times Electric (3898 HK) P&L statement and key revenue segment forecast (RMB m, except for per share amount) FY ended 31 Dec 1H14 2H14 1H15 2H15 1H16 2H16 P&L E 2018E Sales Revenue 5,180 7,496 5,723 9,077 6,533 8,125 Sales Revenue 12,676 14,800 14,658 16,201 18,359 COGS -3,324-4,553-3,460-5,678-4,054-5,009 COGS -7,876-9,138-9,062-10,096-11,442 Gross profit 1,857 2,943 2,263 3,399 2,479 3,116 Gross profit 4,800 5,662 5,596 6,105 6,918 Sales tax Sales tax Selling and distribution costs Selling and distribution costs Administrative expenses Administrative expenses -1,349-1,667-1,796-1,985-2,249 Other gains and losses Other gains and losses Total EBIT 1,010 1,650 1,351 2,032 1,519 1,792 Total EBIT 2,660 3,383 3,311 3,573 4,038 Depreciation & Amortisation Depreciation & Amortisation EBITDA 1,099 1,830 1,487 2,187 1,654 1,963 EBITDA 2,929 3,674 3,617 3,948 4,421 Net finance costs Net finance costs Profits from associates and JCEs Profits from associates and JCEs Pre-Tax Profit 1,052 1,703 1,431 2,025 1,501 1,834 Pre-Tax Profit 2,755 3,456 3,336 3,656 4,154 Tax Expense Tax Expense Net Profit After Tax 855 1,537 1,220 1,758 1,294 1,624 Net Profit After Tax 2,392 2,978 2,918 3,198 3,634 Minority Interest Minority Interest Reported Earnings (attributable) 857 1,537 1,220 1,745 1,286 1,617 Reported Earnings 2,395 2,965 2,904 3,183 3,618 Adjusted Earnings 857 1,537 1,220 1,745 1,286 1,617 Adjusted Earnings 2,395 2,965 2,904 3,183 3,618 EPS (rep) EPS (rep) EPS (adj) EPS (adj) DPS DPS % YoY growth % YoY growth Revenue 97.4% 20.3% 10.5% 21.1% 14.2% -10.5% Revenue 43.1% 16.8% -1.0% 10.5% 13.3% Gross profit 86.3% 36.0% 21.9% 15.5% 9.6% -8.3% Gross profit 51.8% 18.0% -1.2% 9.1% 13.3% EBIT 117.5% 37.6% 33.8% 23.1% 12.5% -11.8% EBIT 59.9% 27.2% -2.1% 7.9% 13.0% Net profit 114.3% 44.1% 42.3% 13.5% 5.5% -7.3% Net profit 63.2% 23.8% -2.1% 9.6% 13.7% Margins and ratios Margins and ratios Gross profit margin 35.8% 39.3% 39.5% 37.4% 37.9% 38.4% Gross profit margin 37.9% 38.3% 38.2% 37.7% 37.7% EBITDA Margin 21.2% 24.4% 26.0% 24.1% 25.3% 24.2% EBITDA Margin 23.1% 24.8% 24.7% 24.4% 24.1% EBIT Margin 19.5% 22.0% 23.6% 22.4% 23.3% 22.1% EBIT Margin 21.0% 22.9% 22.6% 22.1% 22.0% Net Profit Margin 16.6% 20.5% 21.3% 19.2% 19.7% 19.9% Net Profit Margin 18.9% 20.0% 19.8% 19.6% 19.7% Revenue breakdown (Rmb m) E 2018E Locomotive 3,704 3,458 1,925 3,320 3,486 MU 4,759 4,951 5,446 4,159 4,444 Urban rail equipment 1,208 1,873 2,584 3,409 4,432 Train power converters and control systems 9,671 10,282 9,955 10,888 12,362 Train operation safety equipment ECS for large railway maintenance vehicles 1,149 1,495 1,782 2,138 2,459 Train-borne electrical systems 11,394 12,338 12,273 13,615 15,469 Key electric part and component products ,071 Marine engineerging products and others 651 1,816 1,575 1,654 1,819 Total revenue 12,676 14,800 14,658 16,201 18,359 % YoY Locomotive 27.5% -6.6% -44.3% 72.5% 5.0% MU 105.6% 4.0% 10.0% -23.6% 6.9% Urban rail equipment 26.4% 55.1% 38.0% 31.9% 30.0% Train power converters and control systems 56.6% 6.3% -3.2% 9.4% 13.5% Train operation safety equipment 0.6% -2.4% -4.4% 10.0% 10.0% ECS for large railway maintenance vehicles 4.1% 30.2% 19.2% 20.0% 15.0% Train-borne electrical systems 45.1% 8.3% -0.5% 10.9% 13.6% Key electric part and component products -37.3% 2.3% 25.5% 15.0% 15.0% Marine engineerging products and others na 178.9% -13.3% 5.0% 10.0% Total revenue 43.1% 16.8% -1.0% 10.5% 13.3% % of total Locomotive 29% 23% 13% 20% 19% MU 38% 33% 37% 26% 24% Urban rail equipment 10% 13% 18% 21% 24% Train power converters and control systems 76% 69% 68% 67% 67% Train operation safety equipment 5% 4% 4% 4% 4% ECS for large railway maintenance vehicles 9% 10% 12% 13% 13% Train-borne electrical systems 90% 83% 84% 84% 84% Key electric part and component products 5% 4% 6% 6% 6% Marine engineerging products and others 5% 12% 11% 10% 10% Total revenue 100% 100% 100% 100% 100% 3

4 Key financials CRRC Times Electric (3898 HK) Balance sheet & Cash flow statement (RMB m, except for per share amount) Balance sheet E 2018E Cash flow statement E 2018E Cash 3,136 2,680 3,500 3,201 4,673 6,421 EBITDA 2,929 3,674 3,617 3,948 4,421 Trade and bill receivables 4,907 5,998 8,701 9,576 10,700 12,125 Net Interest Paid Inventories 1,428 2,207 3,120 3,239 3,734 4,232 Tax Paid Prepayments Change in Working Cap 1,026-1,836-1,976-1,013-1,099 Other current assets 1,185 3,054 3,273 2,497 2,497 2,497 Others -1, Total current assets 10,813 14,166 19,024 18,860 21,987 25,710 Operating Cash Flow 2,057 1,433 1,456 2,511 2,868 Long-term equity investment Acquisitions -4,500-6,364-4, PPE, net 1,830 1,883 2,024 3,015 3,116 3,207 Capex , Other intangible assets Asset Sales Goodwill Others 2,707 5,155 5, Prepaid land lease payments Investing Cashflow -2,128-1, Deferred tax assets Other non-current assets Dividend (ordinary) Total non-current assets 2,586 2,759 3,908 4,863 4,997 5,125 Equity Raised Debt Movements -38 1, Total assets 13,398 16,925 22,932 23,724 26,984 30,835 Others Financing Cashflow , Trade and bill payable 2,679 3,431 4,493 4,622 5,115 5,797 Short term Debt Exchange difference Other payables and accruals 678 1,014 1,232 1,308 1,457 1,651 Net Chg in Cash/debt ,471 1,748 Provision FCF ,051 2,408 Tax payable Other current liabilities E 2018E Total current liabilities 3,821 4,987 6,732 6,751 7,393 8,269 Valuation PE(x) Long Term Debt , EPS growth (%) Deferred tax liabilities Yield(%) Provision PEG(%) Long-term payables EV/EBITDA(x) Other non-current liabilities PB(x) Total non-current liabilities , Operational Total liabilities 4,248 5,754 8,915 7,664 8,306 9,181 Revenue growth(%) EBIT margin(%) Shareholders Fund 9,016 10,991 13,780 15,800 18,403 21,362 Net profit margin(%) Minority Interest Total S/H Equity 9,150 11,171 14,017 16,060 18,679 21,654 Days receivables Days payables Total Liab & S/H Fund 13,398 16,925 22,932 23,724 26,984 30,835 Days inventories BVPS Current ratio((x) EV 37,059 37,473 38,073 37,160 35,689 33,940 Quick ratio(x) Asset/equity(x) Net debt/equity(%) EBITDA interest coverage(x) ROE(%)

5 Figure 4: CRRC Times Electric 1H17 results preview Rmb m 1H17E 1H16 % YoY Revenue 6,804 6, % COGS -4,240-4, % GP 2,564 2, % GPM 37.7% 37.9% -0.3% SG&A -1,117-1, % Other gains and losses % OP 1,501 1, % OPM 22.1% 23.3% -1.2% Financing cost na Profit contribution from associates % PBT 1,536 1, % Tax % Effective tax rate -12.5% -13.8% 1.3% PAT 1,343 1, % NPM 19.7% 19.8% -0.1% Minority interest % Profit to common shareholder 1,337 1, % Figure 5: CRRC Times Electric earnings revision: CGIS new vs. old and consensus estimates 2017E (Rmb m, Rmb) Sales EBIT EBITDA Net profit EPS Adj EPS GAAP CGIS old 16,022 3,624 3,999 3, CGIS new 16,201 3,573 3,948 3, Consensus 16,258 3,636 3,890 3, Diff% CGIS new vs. consensus -0.4% -1.7% 1.5% -0.1% -1.3% -1.2% CGIS new vs. old 1.1% -1.4% -1.3% -1.4% -1.4% -1.4% 2018E (Rmb m, Rmb) Sales EBIT EBITDA Net profit EPS Adj EPS GAAP CGIS old 18,688 4,169 4,552 3, CGIS new 18,359 4,038 4,421 3, Consensus 18,090 4,000 4,312 3, Diff% CGIS new vs. consensus 1.5% 0.9% 2.5% 1.7% 0.9% 1.2% CGIS new vs. old -1.8% -3.1% -2.9% -3.1% -3.1% -3.1% Source: Bloomberg, CGIS Research estimates 5

6 Figure 6: CRRC Times Electric 12-mth forward PER Figure 7: CRRC Times Electric CYTD share price performance 20.0% 15.0% 10.0% 5.0% 0.0% Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul % -10.0% 12-mth forward PER Average +1 Std -1 Std CRRC Times Electric HSI Index Source: Bloomberg, CGIS Research estimates Source: Bloomberg, CGIS Research estimates 6

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914-151014c 21 年 1 月 14 日現價 :HK$2.1 潜在上升空间 :+19% 目标价 :HK$29.8 水泥行業安徽海螺水泥 (914.HK) 華東的一流水泥生產商落后同步领先首次覆蓋財務資料一覽年結 12 月 31 日 213 214 21E 216E 217E 收入 ( 人民幣百萬元 ),262 6,79