CRRC [1766.HK] Earnings potential to increase with accelerating railway reform; Maintain BUY We remain confident in the demand growth outlook for CRRC

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1 中国中车 [1766.HK] 铁路改革提速将增加公司盈利增长潜力 ; 维持买入对于中国中车核心铁路业务在十三五面对的需求前景, 我们仍然充满信心, 主要由于 :1) 中国铁路网持续快速发展 ;2) 铁路改革正在提速, 这将延长铁路设备的投资周期中国中车的盈利增长在 2017 年第三季已有所回升我们维持公司 2017 年和 2018 年的盈利预测随着公司动车组业务逐渐恢复增长, 我们预测其 2017 年和 2018 年总收入分别同比增长 6.6% 和 7.9% 我们预期其 2017 年盈利将同比增长 6.1%, 并在 2018 年加快至 12.2% 我们预计, 若铁路业务改革的步伐超预期, 我们和市场共识的盈利预测将有更多上升空间我们预期, 公司将是中国一带一路战略的主要受益者由于海外订单充足, 我们预计公司海外业务的增速将高于国内业务我们维持对中国中车的买入评级, 目标价由 9.20 港元提升至港元我们的目标价是基于 18 倍 2018 年目标市盈率, 对比此前的目标市盈率为 17 倍我们预计随着铁路改革加快, 公司的盈利增长潜力将扩大, 并将推动股份获得重新估值 2018 年 1 月 2 日中国铁路业买入收盘价 : 8.36 港元 (2017 年 12 月 29 日 ) 目标价 : 港元 (+21.7%) 投资亮点盈利增长从 2017 年第三季开始复苏 : 中国中车 2017 年第三季净利润同比增长 15.2% 期内公司的机车货车和城轨交通车辆业务的盈利强劲增长, 抵消了动车组和其他业务盈利下滑的影响我们预计, 从 2018 年开始的新增铁路线将支持动车组业务的需求增长同时, 铁路运营改革的深化将进一步拉动铁路业务的需求增长我们预计公司的机车货运和货车业务的需求增长将受助于以下因素 :1) 中铁总增加高铁班次 ;2) 中铁总扩大其货运业务我们预计公司的核心铁路业务收入将在 2017 年和 2018 年分别同比增长 12.7% 和 3.5% 我们预计,2017 年和 2018 年的总收入将分别同比增长 6.6% 和 7.9% 我们预计我们的收入预测有上调的机会, 主要取决于 2018 年铁路改革的步伐合并后的成本协同效应逐步浮现 : 中国中车已整合了原有中国南车和中国北车的原材料和零部件采购平台该合并也减少了投资冗余, 并减少了城轨交通车辆子公司之间的竞争, 最终有助于提升该产品的盈利能力此外, 中国中车开始了货车业务的重组最近公司宣布将其中一个货运业务部门售回予母公司, 这显示出其重组业务以减少产能和精简业务的过程顺利我们预期, 公司的毛利率将由 2016 年的 20.1% 进一步扩大至 2017 年的 21.0% 及 2018 年的 21.1% 预计中国中车将在中央政府一带一路战略中发挥重要作用 : 中国中车是中央政府推进一带一路战略的主要受益者我们预计在国内经济增长放缓的情况下, 中国政府在 2018 年将更积极推动一带一路战略中国中车凭借其广泛的产品线在全球铁路设备行业中占据领先地位公司的目标是到 2020 年海外收入占总收入的 15%, 对比 2017 首九个月占 10% 左右维持中国中车的买入评级 : 我们将目标价从 9.20 港元上调至港元我们的目标价是基于 18 倍 2018 年目标市盈率, 此前的目标市盈率为 17 倍我们预计, 随着铁路改革加快, 公司的盈利增长潜力将会上升, 并将使股份获得重估公司的 2018 年预测市盈率为 14.9 倍, 仍低于历史平均水平 17 倍股价表现 ,200 1, Turnover(HK$m, rhs) Price(HK$) 市值亿美元已发行股数亿股核数师 Deloitte 自由流通量 15.19% 52 周交易区间港元三个月日均成交量 3,300 万美元主要股东 CRCCG (54.0%) 来源 : 公司, 彭博邹敏分析员 (852) kellyzou@chinastock.com.hk Y/E Dec E 2018E Turnover 收入 ( 百万元人民币 (RMB ) m) 218, , , , ,802 Recurring 经常性净利润 net ( 百万元人民币 profit (RMB ) m) 10,815 11,818 11,296 11,987 13,453 Net 净利润率 margin (%) (%) 5.0% 5.0% 5.0% 5.0% 5.2% Recurring 经常性每股盈利 EPS ( 人民币 (RMB) ) % 百分比变动 change na 5.9% -4.4% 1.1% 12.0% 市盈率 ( 倍 ) PER(x) 市净率 ( 倍 ) PBR(x) EV/EBITDA( 倍 ) EV/EBITDA(x) 来源 : 公司, 中国银河国际证券研究部预测王志文, CFA 研究部主管 (852) cmwong@chinastock.com.hk 1

2 CRRC [1766.HK] Earnings potential to increase with accelerating railway reform; Maintain BUY We remain confident in the demand growth outlook for CRRC s core railway business in the 13th FYP, considering 1) the continued fast development of the railway network, and 2) accelerating railway reforms, which will extend the railway equipment investment cycle. CRRC s earnings growth recovered in Q We maintain our earnings forecast for the Company in 2017 and With gradually recovering MU business growth, we forecast that its total revenue will grow 6.6% and 7.9% YoY in 2017 and 2018, respectively. We expect its earnings to grow 6.1% in 2017 and accelerate to 12.2% YoY in We expect upside risk to our and consensus earnings estimates, depending on the pace of railway operation reforms. We expect the Company to be a key beneficiary of China s Belt and Road Initiative. Given sufficient overseas orders on hand, we expect the Company to grow its overseas business faster than its domestic business. We maintain our Buy rating on CRRC. We lift our target price (TP) from HK$9.20 to HK$ Our TP is based on a multiple of 18x 2018E PER vs. our previous target PER multiple of 17x. We expect its earnings potential to increase with accelerating railway reforms, which should drive a share price re-rating. Investment Highlights Earnings growth to recover from Q3 2017: CRRC reported that its net profit rose 15.2% YoY in Q Strong earnings growth of its locomotive, freight wagon and urban transit vehicle segments offset an earnings decline in its MU segment and other segments in Q3. We expect increases in new line additions from 2018 onwards to support demand growth recovery in its MU segment. Meanwhile, deepening railway operation reforms will further boost demand growth for its railway business. We expect demand growth in its locomotive, MU and freight wagon segments to be supported by 1) CRC raising high-speed train operation density, and 2) CRC expanding its freight business. We expect core railway business revenue growth of 12.7% and 3.5% YoY in 2017 and 2018, respectively. We forecast total revenue growth of 6.6% and 7.9% YoY in 2017 and 2018, respectively. We expect upside risk to our revenue forecast, depending on the pace of railway reforms in Post-merger cost synergy gradually kicking in to boost margins: CRRC has consolidated the raw material and component procurement platforms under the previous CSR and CNR. The merger also reduced its investment redundancies and led to less competition among its urban transit vehicle subsidiaries, thereby helping to enhance the profitability of this product segment. In addition, CRRC started the business restructuring of its freight wagon business. Recently it announced that it will sell one of its freight wagon business units back to its parent company, which shows its business restructuring to reduce capacity and streamline its business is well on track. We expect its gross profit margin to further expand from 20.1% in 2016 to 21.0% in 2017 and 21.1% in CRRC expected to play an important role in the central government s Belt and Road Initiative: CRRC is a key beneficiary of the central government s push on the Belt and Road Initiative. We expect the central government to push the Belt and Road Initiative even harder in 2018 amid tepid economic growth in the domestic market. CRRC has established a leading position in the global railway equipment industry with its wide product line. The Company s target is to have overseas revenue represent 15% of its total revenue by 2020 vs. around c10% of total revenue in 9M17. Maintain our Buy rating on CRRC: We lift our TP from HK$9.20 to HK$ Our TP is based on a multiple of 18x 2018E PER vs. our previous target PER multiple of 17x. We expect its earnings potential to increase with accelerating railway reforms, which should drive a share price re-rating. Its 2018E PER of 14.9x is still below its historical average of 17x. Y/E Dec E 2018E Turnover (RMB m) 218, , , , ,802 Recurring net profit (RMB m) 10,815 11,818 11,296 11,987 13,453 Net margin (%) 5.0% 5.0% 5.0% 5.0% 5.2% Recurring EPS (RMB) % change na 5.9% -4.4% 1.1% 12.0% PER(x) PBR(x) EV/EBITDA(x) China Railway Sector BUY Close: HK$8.36 (December 29, 2017) Target Price: HK$10.00 (+21.7%) Price Performance January 2, ,200 1, Turnover(HK$m, rhs) Price(HK$) Market Cap US$49,954m Shares Outstanding 4,371m Auditor Deloitte Free Float 15.19% 52W range HK$ M average daily T/O US$33m Major Shareholding CRCCG (54.0%) Sources: Company data, Bloomberg Kelly Zou Analyst (852) kellyzou@chinastock.com.hk Wong Chi Man, CFA Head of Research (852) cmwong@chinastock.com.hk 2

3 Key financials CRRC (1766 HK) P&L statement and key revenue segment forecast (RMB m, except for per share amount) Interim 1H15 2H15 1H16 2H16 1H17 2H17E P&L E 2018E Sales Revenue 91, ,968 92, ,817 86, ,201 Sales Revenue 218, , , , ,802 COGS -72, ,940-71, ,431-68, ,697 COGS -175, , , , ,420 Gross Profit 19,507 27,028 20,642 24,386 18,584 31,504 Gross Profit 42,831 46,535 45,028 50,087 54,382 Selling and distribution costs -3,372-4,581-3,179-4,071-2,816-4,916 Selling and distribution cost -7,402-7,954-7,250-7,731-7,992 Administrative expenses -9,533-12,953-9,987-12,439-10,369-14,729 Administrative expenses -19,727-22,486-22,427-25,098-27,069 Other gains and losses , Other gains and losses -90 1,383 2,114 1,200 1,224 Total EBIT 7,108 10,370 7,678 9,787 5,831 12,627 Total EBIT 15,612 17,478 17,465 18,458 20,545 Depreciation & Amortisation 2,816 3,401 3,079 3,426 3,247 3,791 Depreciation 5,244 6,217 6,505 7,039 7,205 EBITDA 9,924 13,771 10,757 13,213 9,079 16,418 EBITDA 20,856 23,695 23,970 25,497 27,750 Net Interest Income Net Interest Expense -1, ,135-1,093 Profit contribution from JV and asso Share of Associate Profit (lo Pre-Tax Profit 7,004 10,044 7,557 9,377 5,641 12,181 Pre-Tax Profit 14,484 17,048 16,935 17,822 20,001 Tax Expense -1,329-1,621-1,483-1,542-1,037-2,046 Tax Expense -2,137-2,951-3,025-3,083-3,460 Net Profit After Tax 5,675 8,423 6,074 7,836 4,604 10,134 Net Profit After Tax 12,346 14,098 13,910 14,738 16,541 Minority Interest ,304-1,280-1, ,820 Minority Interest -1,531-2,279-2,614-2,751-3,088 Reported Earnings (attributable) 4,699 7,120 4,795 6,501 3,673 8,315 Reported Earnings 10,815 11,818 11,296 11,987 13,453 Adjusted Earnings 4,699 7,120 4,795 6,501 3,673 8,315 Adjusted Earnings 10,815 11,818 11,296 11,987 13,453 EPS (rep) EPS (rep) EPS (adj) EPS (adj) DPS DPS % YoY growth % YoY growth Revenue 6.3% 10.5% 0.5% -9.7% -6.0% 15.5% Revenue 126.3% 8.9% -5.7% 6.6% 7.9% Gross profit 17.2% 3.2% 5.8% -9.8% -10.0% 29.2% Gross profit 157.6% 8.6% -3.2% 11.2% 8.6% EBIT 7.2% 15.5% 8.0% -5.6% -24.1% 29.0% EBIT 161.0% 12.0% -0.1% 5.7% 11.3% Net profit 6.9% 10.9% 2.0% -8.7% -23.4% 27.9% Net profit 161.2% 9.3% -4.4% 6.1% 12.2% Margins and ratios Margins and ratios Gross profit margin 21.2% 18.5% 22.4% 18.5% 21.4% 20.7% Gross profit margin 19.6% 19.6% 20.1% 21.0% 21.1% EBITDA Margin 10.8% 9.4% 11.7% 10.0% 10.5% 10.8% EBITDA Margin 9.5% 10.0% 10.7% 10.7% 10.8% EBIT Margin 7.7% 7.1% 8.3% 7.4% 6.7% 8.3% EBIT Margin 7.1% 7.4% 7.8% 7.7% 8.0% Net Profit Margin 5.1% 4.9% 5.2% 4.9% 4.2% 5.5% Net Profit Margin 5.0% 5.0% 5.0% 5.0% 5.2% Revenue breakdown (Rmb m) E 2018E Locomotives 36,217 32,361 12,339 26,250 27,563 Passenger carriages 11,367 10,227 8,327 5,094 5,094 Freight wagons 14,780 10,138 10,857 31,375 25,100 Multiple units 63,450 76,824 74,652 56,912 66,074 Railway equipment 125, , , , ,831 Rapid transit vehicles and urban infras 17,931 24,477 26,978 37,230 44,675 New business 40,984 52,513 57,562 60,440 66,484 Modern service 33,722 31,244 33,424 21,725 22,812 Total revenue 218, , , , ,802 % YoY Locomotives na -10.6% -61.9% 112.7% 5.0% Passenger carriages na -10.0% -18.6% -38.8% 0.0% Freight wagons na -31.4% 7.1% 189.0% -20.0% Multiple units na 21.1% -2.8% -23.8% 16.1% Railway equipment na 3.0% -18.0% 12.7% 3.5% Rapid transit vehicles and urban infras na 36.5% 10.2% 38.0% 20.0% New businesses na 28.1% 9.6% 5.0% 10.0% Modern service na -7.3% 7.0% -35.0% 5.0% Total revenue na 8.9% -5.7% 6.6% 7.9% % of total Locomotives 17% 14% 6% 11% 11% Passenger carriages 5% 4% 4% 2% 2% Freight wagons 7% 4% 5% 13% 10% Multiple units 29% 32% 33% 24% 26% Railway equipment 58% 54% 47% 50% 48% Rapid transit vehicles and urban infras 8% 10% 12% 16% 17% New businesses 19% 22% 26% 25% 26% Modern service 15% 13% 15% 9% 9% Total revenue 100% 100% 100% 100% 100% 3

4 Key financials CRRC (1766 HK) Balance sheet, cash flow statements and ratios (RMB m, except for per share amount) Balance sheet E 2017E 2018E Cash flow statement E 2018E Inventories 59,628 59,747 54,402 57,387 61,305 EBITDA 20,856 23,695 23,970 25,497 27,750 Trade receivables 58,424 72,514 74,053 78,972 84,757 Tax Paid -2,878-3,328-3,644-3,083-3,460 Bills receivables 8,880 10,166 15,100 16,103 16,951 Change in Working Cap 7,995-7, , Prepayments and other receivables 19,805 18,787 30,501 32,175 33,996 Net interest paid -2,270-1,412-1,264-1,135-1,093 Prepaid lease payments Others 2,664 1,093 1, Available-for-sale investment 4,400 3, Operating Cash Flow 26,367 13,046 19,684 19,051 23,107 Cash and cash equivalent 43,837 34,755 41,034 68,310 78,236 Acquisitions -8,970-7,188-18, Other current assets 42 1, Capex -9,866-9,207-10,373-10,743-10,743 Tax recoverable Asset Sales Pledged bank deposits 5,059 4,614 4,561 4,561 4,561 Investment 3,120 5,413 10, Current assets 200, , , , ,106 Others -4,414 5,239-6, Investing Cashflow -19,785-5,392-24,709-10,743-10,743 PPE 58,743 62,180 66,364 70,657 74,612 Dividend (ordinary) -3,306-3,220-4,064-5,731-6,094 Investment properties Equity Raised 7, ,000 0 Prepaid lease payments 13,548 14,428 14,492 14,456 14,421 Debt Movements 5,107-11,294 7,427 12,765 3,656 Goodwill 792 1,315 1,287 1,287 1,287 Others Other intangible assets 1,949 3,260 2,820 2,313 1,975 Financing Cashflow 9,343-14,752 2,609 18,968-2,438 Long-term equity investment 4,814 3,613 8,472 8,971 9,519 Available-for-sale investment 1,022 3,157 3,819 3,819 3,819 Exchange difference Deferred tax assets 1,928 2,744 3,009 3,009 3,009 Net Chg in Cash/debt 15,842-7,090-1,930 27,276 9,926 Other non-current assets 15,393 14,533 16,124 16,124 16,124 FCF 6,583 7,654-5,025 8,308 12,363 Non-current assets 98, , , , , E 2018E Valuation Total assets 298, , , , ,755 PE(x) EPS growth(%) Trade payables 71,390 83,179 91,950 96, ,430 Yield(%) Bills payables 21,551 22,790 19,797 20,884 22,484 PEG(%) Other payables and accruals 47,539 41,245 38,217 40,315 43,404 EV/EBITDA(x) Short-term debt 27,375 15,260 27,184 37,996 28,497 PB(x) Retirement benefit obligagtions Tax payables 1,310 1,534 1,272 1,272 1,272 Operational Provision fro warranties 1,952 2,280 1,866 1,990 2,146 Revenue growth(%) Other current liabilities 1,404 2,451 3,621 3,621 3,621 EBIT margin(%) Current liabilities 172, , , , ,174 Net profit margin(%) Long-term debt 12,216 14,316 10,713 12,665 25,821 Days receivables Long-term payables Days payables Retirement benefit obligations 4,201 4,054 3,516 3,516 3,516 Days inventories Provision for warranties 1,795 3,741 4,536 4,536 4,536 Deferred tax liabilities Current ratio((x) Other non-current liabilities 5,079 6,398 11,065 11,065 11,065 Quick ratio(x) Non-current liabilities 23,724 29,028 30,279 32,231 45,387 Asset/equity(x) Net debt/equity(%) Total liabilities 196, , , , ,561 EBITDA interest coverage(x Shareholders Fund 89,295 96, , , ,406 Minority Interest 12,882 16,674 18,948 21,699 24,787 Total S/H Equity 102, , , , ,193 ROE(%) Total Liab & S/H Fund 298, , , , ,755 4

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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