China Railway Group's Outlook Remains Stable Amid Solid New Order Wins

Leading Independent Investment Research, Morningstar, Inc.

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Equity Bottom-Up

China Railway Group Ltd H / Equity Bottom-Up

No-moat China Railway Group's, or CRG's, first quarter was solid, with net income rising 15.3% year on year to CNY 2.5 billion, mainly on lower tax and financing expense, while revenue was up 5.2% year on year to CNY 113.3 billion. CRG’s robust new order growth, especially in the more profitable urban rail contract, should help the company maintain its current margin level, while the solid performance of the non-infrastructure segment provides an additional buffer to the bottom line. We maintain our fair value estimate of HKD 7.50 per share and consider shares fairly valued at the current market price.In the first quarter, CRG’s overall new order growth rose 36% year on year to CNY 257 billion, with both infrastructure and non-infrastructure operations seeing strong demand, which is in line with what we have seen from its peers. On the infrastructure side, the company’s flagship railway infrastructure orders dropped 56% year on year, mainly due to seasonality such as the Chinese New Year, and we should see a noticeable pickup in new orders in the remainder of the year. In comparison, new orders from the expressway and municipal project segments are up 133% year on year and 112% year on year, respectively. The more profitable urban rail operations, in particular, saw year-on-year growth of over 138% and account for nearly 29% of total new order wins. The non-infrastructure operations were equally robust, with new orders for infrastructure services up 37% year on year. The high-margin real estate operations, which saw 87% year-on-year new contract growth, help provide an additional boost to the bottom line.Analyst: John Hu

No-moat China Railway Group's, or CRG's, first quarter was solid, with net income rising 15.3% year on year to CNY 2.5 billion, mainly on lower tax and financing expense, while revenue was up 5.2% year on year to CNY 113.3 billion. CRG’s robust new order growth, especially in the more profitable urban rail contract, should help the company maintain its current margin level, while the solid performance of the non-infrastructure segment provides an additional buffer to the bottom line. We maintain our fair value estimate of HKD 7.50 per share and consider shares fairly valued at the current market price.In the first quarter, CRG’s overall new order growth rose 36% year on year to CNY 257 billion, with both infrastructure and non-infrastructure operations seeing strong demand, which is in line with what we have seen from its peers. On the infrastructure side, the company’s flagship railway infrastructure orders dropped 56% year on year, mainly due to seasonality such as the Chinese New Year, and we should see a noticeable pickup in new orders in the remainder of the year. In comparison, new orders from the expressway and municipal project segments are up 133% year on year and 112% year on year, respectively. The more profitable urban rail operations, in particular, saw year-on-year growth of over 138% and account for nearly 29% of total new order wins. The non-infrastructure operations were equally robust, with new orders for infrastructure services up 37% year on year. The high-margin real estate operations, which saw 87% year-on-year new contract growth, help provide an additional boost to the bottom line.Analyst: John Hu

CRG Delivered Solid 1Q Result on Lower Tax; Outlook Reaffirmed by Robust New Order Growth