China Railway Group’s (00390 HK) 1Q2020 revenue decreased 2.1%YoY to RMB156.3 billion, mainly due to the delay in work resumption asaffected by the COVID-19 pandemic. Shareholders’ net profit decreased6.7% YoY to RMB3.6 billion. Results were basically in line withexpectation. Overall gross margin was down 0.5 ppts YoY to 9.5%. During1Q2020, the Company received RMB337.6 billion in new contracts, up 7.8%YoY.
We expect total revenue to increase at a CAGR of 12.7% in 2019-2022and expect overall gross margin to be maintained at 9.2% in 2020-2022.In addition, we expect the Company’s net gearing to remain low andcontrollable and ROE to stay between 9.8% and 10.1% in 2020-2022.
Our EPS estimates for 2020/ 2021/ 2022 are RMB0.897, RMB1.004 andRMB1.111, respectively. We expect that the Government will continue toincrease fixed assets spending, especially in infrastructure, to maintain stableeconomic growth. In particular, the Company’s more focused approach inurban rail transit infrastructure construction business should benefit the mostfrom the expected infrastructure investment boom. We raise the TP toHK$6.70, representing 6.8x/ 6.1x/ 5.5x 2020/ 2021/ 2022 PER. Maintain"Buy".