China Railway Group’s (00390 HK) 1Q2022 revenue increased 12.7% YoY to RMB267.1 billion. Shareholders’ net profit increased 17.0% YoY to RMB7.6 billion. Results slightly exceeded expectation. Overall gross margin was down 0.5 ppts YoY to 9.2%. Selling expenses ratio stayed flat at 0.5% YoY, administrative expenses ratio decreased 0.3 ppts YoY to 2.3%, R&D expenses ratio increased 0.1 ppts YoY to 1.7%, finance costs ratio deceased 0.3 ppts YoY to 0.4%. The Company received new contracts of RMB605.7 billion in 1Q2022, up 84.0% YoY, of which infrastructure new contracts amounted to RMB543.5 billion, up 94.1% YoY.
　　We expect total revenue to increase at a CAGR of 10.1% in 2021-2024 and expect overall gross margin to slightly improve from 9.6% in 2022 to 9.8% in 2024. In addition, we expect the Company’s total expenses ratio to be maintained at 4.2% in 2022-2024, and ROE to stay between 10.4% and 10.7% in 2022-2024.
　　Our EPS estimates for 2022/ 2023/ 2024 are RMB1.194, RMB1.346 and RMB1.469, respectively. Infrastructure investment growth may continue to exceed expectation in 2022; the Company, being one of the largest rail transit and major urban construction engineering companies, will significantly benefit. Raise the TP to HK$7.10, representing 5.9x/ 5.5x/ 5.1x 2022/ 2023/ 2024 EV/EBITDA. Maintain "Buy".