China Railway Group’s (00390 HK) 1H2020 revenue increased 15.0%YoY to RMB416.303 billion. Shareholders’ profit increased 11.3% YoY toRMB11.697 billion. Results exceeded expectation, mainly due tostronger-than-expected recovery in infrastructure constructionoperation in 2Q2020. Overall gross margin decreased 0.9 ppts YoY to 8.7%.
　　1H2020 new contracts amounted to RMB870.34 billion, up 24.1% YoY.
We expect total revenue to increase at a CAGR of 12.1% in 2019-2022and expect overall gross margin to increase marginally from 9.1% in2020 to 9.3% in 2022. In addition, we expect total expenses ratio to stay atapproximately 3.9% in 2020-2022 and ROE to stay between 10.4% and10.8% in 2020-2022.
Our EPS estimates for 2020/ 2021/ 2022 are RMB0.960, RMB1.084 andRMB1.215, respectively. Due to the Government’s increased attention torailway investment for fast-speed transportation consideration andenvironmental protection consideration, we expect railway investment togrow faster compared with other transportation investment such as highwaysand ports. In particular, urban rail transit investment will grow even faster,while the Company as the largest constructor will benefit the most. Wemaintain the TP at HK$6.70, representing 4.6x/ 4.4x/ 4.1x 2020/ 2021/2022 EV/EBITDA. Maintain "Buy".