CRRC Corporation’s （01766 HK） 1Q2019 revenue increased 20.5% YoYto RMB39.668 billion. Shareholders’ net profit increased 40.2% YoY toRMB1.780 billion. Results were better than expectation. Gross margindropped 0.6 ppts YoY to 22.1%, while selling expenses ratio, administrativeexpenses ratio, and finance cost ratio also dropped, so that profit growth washigher than revenue growth. In 1Q2019, the Company received RMB61.4billion in new contracts, up 26.0% YoY.
We expect revenue CAGR of railway equipment, rapid transit vehiclesand urban infrastructure, new businesses and modern services to be9.4%, 7.7%, 12.3% and -5.3%, respectively, in 2018-2021. In addition, weexpect gross margin to gradually improve from 21.5% in 2018 to 22.8% in2021. Finally, we expect the Company to remain in substantial net cashposition in 2019-2021.
Our EPS estimates are RMB0.469, RMB0.558 and RMB0.651 for 2019/2020/ 2021, respectively. Overall, the Company’s fundamentals are strong.
We raise the TP to HK$8.70, representing 15.9x/ 13.4x/ 11.5x 2019/ 2020/2021 PER. Maintain "Accumulate".