China Specialist, Auto and Industrial Specialist

Victoria Li

20 years experience as sell side analyst focusing on China's Industrial and Auto sectors

China Capital Goods: New Infrastructure, New Opportunities!

Thematic (Sector/Industry)

China Capital goods / Thematic (Sector/Industry)

At the end of May, interview in the local media with contact from China State Railway Group clarified that Rmb100bn increment (mentioned in GWR on 22nd May) on rail investment for 2020E would be used to cover the company's loss in 1Q2020, not to increase capex. This indicates the risk that  further increase on China's rail investment expected by the market might not happen due to CSRG's poor profit.As a result, we suggest to stay with companies which already have sufficient orders rather than reliant on new orders. As central government wants more infrastructure to boost economy post Covid-19 pandemic, construction work would mostly continue at a faster-than-normal speed, while spending on equipment might be squeezed temporarily. Also, we still expect more new rail projects would be started, as starting new projects wouldn't require much cash outflow increase from China State Railway Group, but could trigger demand on upstream sectors such as construction machinery and help on economic recovery.We prefer CRG (390.HK) and CRCC(1186.HK) over CRRC(1766.HK) in 2020E.

At the end of May, interview in the local media with contact from China State Railway Group clarified that Rmb100bn increment (mentioned in GWR on 22nd May) on rail investment for 2020E would be used to cover the company's loss in 1Q2020, not to increase capex. This indicates the risk that  further increase on China's rail investment expected by the market might not happen due to CSRG's poor profit.As a result, we suggest to stay with companies which already have sufficient orders rather than reliant on new orders. As central government wants more infrastructure to boost economy post Covid-19 pandemic, construction work would mostly continue at a faster-than-normal speed, while spending on equipment might be squeezed temporarily. Also, we still expect more new rail projects would be started, as starting new projects wouldn't require much cash outflow increase from China State Railway Group, but could trigger demand on upstream sectors such as construction machinery and help on economic recovery.We prefer CRG (390.HK) and CRCC(1186.HK) over CRRC(1766.HK) in 2020E.

China Railway Construction Corp (1186 HK)

China Rail: The Investment Train Will Miss This Station in 2020E