China Railway Group’s (00390 HK) 1Q-3Q2020 revenue increased 20.4%YoY to RMB688.8 billion. Shareholders’ net profit increased 18.0% YoYto RMB18.3 billion. Results exceeded expectation, mainly due tohigher-than-expected revenue growth and lower-than-expectedadministrative expenses ratio in 3Q2020. Overall gross margin decreased1.0 ppts YoY to 9.0%. 1Q-3Q2020 new contracts amounted to RMB1,354.2billion, up 24.3% YoY.
　　We expect total revenue to increase at a CAGR of 12.2% 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 3.7% in 2020-2022.
　　Our EPS estimates for 2020/ 2021/ 2022 are RMB1.022, RMB1.126 andRMB1.261, 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 4.4x/ 4.2x/ 4.0x 2020/ 2021/2022 EV/EBITDA. Maintain "Buy".