CRRC Corporation’s （01766 HK） 1H18 revenue decreased 2.6% YoY toRMB84.60 billion. Net profit increased 12.2% YoY to RMB4.11 billion.Results were in line with expectation. Gross margin increased 1.4 pptsYoY to 22.8%, mainly due to improvement of revenue mix. As at 30th June, theCompany had a total backlog of RMB256.7 billion, up 5.5% compared withthat as at the end of 2017.
We think locomotives and freight wagons will be the main driver ofrailway equipment sales in 2018-2020. EMU is likely to remain stable asquotation price of Fuxing Model EMU is likely to stay unchanged. We expectsales volume of urban rail transit vehicles to increase from 8,000 in 2018 unitsto 8,820 units in 2020. In general, we expect revenues from railwayequipment, RTV and urban infrastructure, new businesses to increase at aCAGR of 10.6%, 11.1%, and 2.6%, respectively, during 2017-2020, andmodern services revenue to drop 30% in 2018 and grow at 10% annually in2019 and 2020.
Our EPS estimates are RMB0.418, RMB0.491 and RMB0.548 for2018/2019/2020, respectively. As revenue contribution fromhigher-gross-margin EMUs overhauling business and sales of locomotivescontinues to increase, overall gross margin is likely to climb further, and hencewe turned more positive about the Company’s outlook. Raise the TP toHKD8.22, representing 16.9x/14.4x/12.9x 2018/2019/2020 PE. Maintain“Accumulate”。