Key takeaways
We talked with CRRC’s executives at the 2018 CICC Investment Forum（Beijing）。 Our key takeaways are as follows:
Railway industry to maintain steady growth in next two years: tomeet the railway construction target for the 13th FYP period, Chinaneeds to complete railways of at least 8,000–9,000 kilometers peryear in 2019–2020.
Procurement of MUs to grow; maintenance services to serve as newdriver for top line growth: China Railway Corporation （CRC） hasprocured 331 MUs YTD. We expect CRRC to deliver 300–350 MUs in2019.
Pull-push trains to gradually replace traditional ones. CRC plans topurchase 30 pull-push trains in 2018. We expect more than 100pull-push trains to be delivered in 2019.
Locomotive and railway wagon businesses to benefit from rising railfreight transport: we see long-term growth potential in railwayfreight transport thanks to the rising mileage of railways completedand construction of rail freight lines. CRRC expects procurement ofmore than 1,000 locomotives in 2019 （vs. 2018’s 795） and 50,000–60,000 freight wagons in 2019 （vs. 2018’s 57,700）。
Rapid growth in delivery of subway cars in next 2 years: there weretenders for 9,096 subway cars in 2017 and more than 8,000 in 2018.
We expect delivery of subway cars to increase rapidly in 2020 given alead-time of 2–3 years.
Recommendation
We maintain our earnings forecast and CRRC-A/-H’s TP at Rmb11.88（27x 2018e and 21x 2019e P/E） and HK$8.23 （15x 2018e and 12x2019e P/E）， implying 40% and 14% upsides. Maintain BUY.
Risks
Lower-than-expected procurement from China Railway Corporation