China Specialist, Auto and Industrial Specialist

Victoria Li

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

CRRC (1766 HK): Buying Opportunity Is Back, Don't Miss Again

CRRC: Earnings Booming With Raised New Rail Line Delivery Target

Equity Bottom-Up

Share price of CRCC declined by 25% YTD. This can be attributed to HK market weakness, low order flow on rail equipments YTD, and yoy decline on China's rail investment in June.<ul>
<li>To date the orders  were for only 3,000 units of freight wagons (vs. 70,000 units expected for FY2019) and 92 sets of 160Km/H MUs (Multiple Units), which has significantly reduced investors' confidence on CRRC's FY2019 earnings.</li>
<li>According to CSRG (China State Railway Group, previous known as CRC and Ministry of Railway), China's rail fixed asset investment declined by 14% yoy in June, vs. a 7% yoy increase in May</li>
</ul>However, we don't think China's rail FAI is weakening. In fact, information we collected from industry experts indicate new rail lines to be completed by the end of this year would be higher than CSRG guided at the beginning of this year. As long as these rail lines are completed as scheduled and get new trains on board at year end, CRRC's FY2019 earnings would increase by 20% yoy as we expected.CRRC's share price would remain weak during interim results season. Because weak order flow in 1H2019 means the company's rail equipment sales recognition would be lower-than-expected. Reiterate BUY. Currently the stock trades at 10.8x P/E on 2019E consensus, or 9.4x P/E on 2019E our estimates.

Share price of CRCC declined by 25% YTD. This can be attributed to HK market weakness, low order flow on rail equipments YTD, and yoy decline on China's rail investment in June.
To date the orders  were for only 3,000 units of freight wagons (vs. 70,000 units expected for FY2019) and 92 sets of 160Km/H MUs (Multiple Units), which has significantly reduced investors' confidence on CRRC's FY2019 earnings.
According to CSRG (China State Railway Group, previous known as CRC and Ministry of Railway), China's rail fixed asset investment declined by 14% yoy in June, vs. a 7% yoy increase in May
However, we don't think China's rail FAI is weakening. In fact, information we collected from industry experts indicate new rail lines to be completed by the end of this year would be higher than CSRG guided at the beginning of this year. As long as these rail lines are completed as scheduled and get new trains on board at year end, CRRC's FY2019 earnings would increase by 20% yoy as we expected.CRRC's share price would remain weak during interim results season. Because weak order flow in 1H2019 means the company's rail equipment sales recognition would be lower-than-expected. Reiterate BUY. Currently the stock trades at 10.8x P/E on 2019E consensus, or 9.4x P/E on 2019E our estimates.

CRRC Corp Ltd H

CRRC (1766.HK): Darkness Before Dawn