Current TP at HK$7.10 with "Buy" rating. Current EPS forecasts for 2022-2024 are RMB1.194/ RMB1.346/ RMB1.469, YoY increase of 15.1%/ 12.8%/ 9.1%, respectively, corresponding to EPS CAGR for 2021-2024 of 12.3%, or 5.5x /5.2x/ 4.7x 2022 /2023 /2024 EV/EBITDA. Taking into account the better-than-expected results, we will raise our profit forecasts and review the target price; we will maintain "Buy" rating.
In 1H2022, China Railway Group (CRG) (00390 HK) saw a 12.5% increase in revenue and a 15.5% increase in shareholders' net profit; results exceeded expectation. Net operating cash flow substantially improved. 1) In 1H2022, revenue was RMB560.6 billion (+12.5%), and shareholders’ net profit was RMB15.1 billion (+11.5%); 2) Gross profit margin was 8.3% (-0.1 ppts), net profit margin was 2.7% (+0.1 ppts); 3) Net operating cash flow was -RMB37.7 billion (-36.0%), net gearing was 51.5% (+5.4 ppts), weighted ROE was 10.8% (+0.8 ppts).
In 1H2022, the growth rate of new contracts was 17.2%, backlog was abundant, and survey, design & consulting services and logistics new contracts growth rates were more than 80%. 1) New contracts signed was RMB1,211.9 billion (+17.2%), backlog to revenue ratio was about 5; domestic new contracts were RMB1,132.1 billion (+14.1%), accounting for 93.4% of total. 2) In terms of business segments, infrastructure construction business new contracts was RMB1,034.8 billion (+13.7%), accounting for 85.4% of total new contracts, of which railway new contracts was RMB99.3 billion (-17.1%); highway new contracts was RMB145.9 billion (+28.4%); municipal works and others new contracts was RMB789.7 billion (+16.7%); 3) survey, design and consulting services new contracts was RMB21.0 billion (+119.0%); engineering equipment and component manufacturing new contracts was RMB34.8 billion (+23.5%); property development new contracts was RMB21.6 billion (-30.8%); other businesses (including logistics) new contracts was RMB99.8 billion (+82.9%).
Growth of infrastructure investment to accelerate; we will raise the Company’s profit forecasts and maintain "Buy" rating. 1) Traditional infrastructure construction businesses such as railways and highways benefited from accelerated growth of infrastructure investment in the second half of the year; 2) The Company increased its exposure in new energy business as new energy business such as hydropower engineering construction expanded rapidly; 3) Demand for metals such as copper, cobalt and molybdenum increased substantially in the development of new infrastructure and new energy fields. The Company’s copper, cobalt and molybdenum reserves are in leading positions in the domestic market compared with its peers, while self-produced copper and molybdenum production capacity ranked at the forefront of the domestic market.
Risk warning: 1) Overheated economy might cause inflation exceeding expectations and policy tightening; 2) and local Covid epidemic situation might see fluctuation.