CRRC Corporation （01766 HK） announced that it signed new contracts of RMB22.07 billion from April toJune 2018, including RMB2.28 billion of locomotive sales contracts, RMB650 million of freight wagonsales contracts, RMB11.9 billion metro cars sales contracts, RMB2.91 billion advanced refurbishment ofEMUs contracts, the RMB2.35 billion wind power generators sales contracts, and RMB1.98 billionelectromechanical system management and supply contracts. In the first half of the year, the Company’snewly signed major contracts totaled RMB70.81 billion, a year-on-year decrease of 3.1%; the new majorcontracts in the second quarter totaled RMB22.07 billion, a year-on-year decrease of 29.6%.
By products, the products that received the most new contracts in the first half of the year were MetroCars （39.1% of total）， refurbishment of EMUs （23.1% of total） and freight wagons （15.5% of total）。 Thenew contract for refurbishment of EMUs reached a record high, reflecting that the EMUs entered the peakperiod of overhaul. We expect that the new contract for refurbishment of EMUs will continue to increase in thenext few years. In addition, the Company did not sign any major contracts of EMUs in the first half of the year,but as the mileage of high-speed rails continues to increase in the next few years, the demand for EMUs willcontinue to increase. We expect that the new contracts for EMUs will increase significantly in the second half ofthe year. Finally, due to the high mileage target of the rapid rail transit, we expect that the new contracts of themetro cars will continue to grow steadily in the next few years despite a high base in new contracts in2018. Overall, even if the gross profit margin of the metro cars products is low, its corresponding revenuegrowth rate is expected to be lower than that of the high-margin refurbishment of EMUs services. We expectthat the overall gross profit margin of the Company will continue to rise in the next few years.
Current valuation of 12.1x/10.9x/9.8x 2018/2019/2020 P/E and 1.0x 2019 PEG is at 20% discount to the 5-yearaverage. We think the valuation is attractive. Maintain “Accumulate” and target price of HKD7.68.