China / Hong Kong Industry Focus China Infrastructure Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 21 Jan 2021

Recovering from the trough HSI: 29,962 • Current valuation of 2-3x P/E factors in lower infrastructure investments and US sanctions

ANALYST • Expect investments in railway and urban rail Manyi LU +852 36684186 [email protected] transit to surprise on the upside Dennis LAM +852 36684177 [email protected] • Sector recovery ahead, expect 10-17% earnings

CAGR for FY20-22F

• Top pick is CRG (390 HK) for strong growth in Recommendation & valuation new contracts and improving cash flow Target Mkt PE

Company Name Currency Price PriceR ecom Cap 21F Expect upside surprise in transportation FAI. The Ministry of Local$ Local$ US$m x Transportation (MoT) of China announced that total China Railway Con.'H' transportation FAI was Rmb 3.4tr in 2020, which exceeded HKD 5.15 7.50 BUY 15,778 2.4 (1186 HK) the target of Rmb2.6tr for the year. The target for 2021 is China Railway Con.'A' lower at Rmb 2.4tr. We expect this target to be exceeded CNY 8.11 9.00 HOLD 15,778 4.5 (601186 CH) with railway FAI growth anticipated to be strong at c.Rmb China Railway Group 'H' 810bn, up from Rmb 780bn in 2020, driven by strong HKD 3.98 5.30 BUY 19,918 3.1 demand for highspeed railways and large investment in the (390 HK) China Railway Group 'A' Tibet-Sichuan Railway project. CNY 5.65 6.20 HOLD 19,918 5.3 (601390 CH) Valuations yet to reflect solid growth in new contract flows. China Comm. Cons. 'H' HKD 4.00 4.00 HOLD 15,552 2.7 Besides the steady growth in railway projects, we see good (1800 HK) growth potential in municipal construction projects such as China Comm. Cons. 'A' CNY 7.32 7.50 HOLD 15,552 6.0 (a) urban railway transit – we expect c.Rmb 800bn (601800 CH)

investments per year in 2020-22 from c.Rmb 600bn in 2019; and (b) housing construction - CRCC and CRG to benefit Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”) from improving market share. We expect the value of new Closing price as at 20 Jan 2021 construction contracts to rise 10-25% y-o-y in FY20-22F, recovering from the downtrend in FY18-19. These positives have yet to be reflected in sector share prices.

Top pick is CRG. We believe the negatives in 2020 such as uncertainties due to the COVID-19 outbreak, and the US’ ban on American investors buying shares in selected China construction companies are largely digested by now. We expect sector valuations to recover from the current level of 2-3x FY21F PE. Potential catalysts are: 1) higher-than- expected infrastructure investment; and 2) issuance of C- REITs to unlock project values and enhance financing capability. Our top pick is China Railway Group (390 HK) on its strong deal flow and improving cash flow.

ed-JS/ sa-CS / AH

Industry Focus

China Infrastructure Sector

Why is the sector trading at historical low valuations? The aim to stabilise house prices and keep debt under control has prevented the government from implementing China infrastructure sector continued to trend down in large-scale monetary and fiscal easing policies. 2020, following a weak 2019. Railway construction companies’ share prices fell by c.30-50% during the year Sector performance vs infrastructure FAI growth while the HSI declined by 3.4%. The sector is now trading at a historical low valuation at 2-3x FY21F P/E, or 0.2-0.3x (Jan 1, 2015 = 1) % FY21F P/B. We believe the current valuation factors in most 2.00 40 of the negatives and we expect valuations to recover 30 supported by improving sector fundamentals. 1.50 20 10 Weak share performance in 2020 1.00 0 -10 0.50 -20 -30 HSI 0.00 -40

CRG

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Jan-19 Jan-20 (390 HK) Jan-21 Sector relative performance to HSI (LHS) CCCC Infrastructure FAI yoy (%, RHS) (1800 HK) CRCC Source: CEIC, DBS HK (1186 HK) 2) US sanctions affecting market sentiment CRRC China-US tensions has negatively affected construction (1766 HK) SOEs in 2020. We believe the impact should be limited as their operations and technology do not have material 0% -20% -40% -60% exposure to the US. However, their share prices have come Source: Bloomberg Finance L.P., DBS HK under short-term pressure given that US investors are banned from buying these stocks from Jan 2021. The following factors led to the sector’s underperformance in 2020: Impact of US sanctions

1) “New normal” of lower infrastructure investment growth Affected China’s infrastructure FAI growth was slower in 2019, companies US sanctions Potential impact* CCCC In Aug 2020, US Dredging business dropping to low single digit from double digit before 2018. restricted 5 of CCCC's makes up 6% of total Infrastructure FAI declined by 30.3% y-o-y in Jan-Feb 20 due dredging subsidiaries revenue; small overseas to COVID-19 impact, and recovered during the rest of the from using technology exposure; not using US year. In Jan-Nov 2020, infrastructure FAI increased by 1% y- or products of US technology in core o-y, lower than overall FAI growth of 2.6% y-o-y, and much suppliers equipment lower than consensus expectations of high-single digit to CCCC From Nov 2020, US US shareholding on H- double digit growth. investors banned shares is 10.9% from investing in In fact, China has entered a “new normal” against the “flood- CCCC like” easing seen during the previous stimulus rounds. The CRCC From Nov 2020, US US shareholding on H- investors banned shares is 13.6% Chinese government is now more tolerant towards slower from investing in economic growth. In the Central Economics Work CRCC Conference in Dec 2020, the government put forward 2021 CRRC From Nov 2020, US US shareholding on H- fiscal policy as “improving quality and efficiency, more investors banned shares is 15% sustainable, maintaining reasonable expenditure”. Efficiency from investing in and quality are now more important factor than simply CRRC having larger scale projects. Source: DBS HK * Shareholding information as of 7 Jan 2021

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Industry Focus

China Infrastructure Sector

After US President Trump issued the executive order PPP projects during the COVID-19 outbreak placed higher barring Americans from investing in a list of Chinese pressure on operating cash flows. companies in Nov 2020, US investors’ shareholdings in the infrastructure sector fell. In the past, 25-30% of H-shares of Secondly, more cost was incurred as a result of COVID-19 infrastructure stocks were held by US shareholders. The outbreak. The gross margins of CRCC, CCCC and CRG fell by shareholding ratio has dropped to 10-15% in Jan 2021. 0.1-0.9ppts y-o-y in 1H20. In 9M20, CRCC and CRG’s gross margins are still lower than the same period in 2019. 3) Pressure on operations from COVID-19 Firstly, operating cash outflow was high in 9M20 vs 9M19. Finally, there is more uncertainty on the outlook of overseas Compared with the sector peak in 2014-15, there is now projects. The impact is larger on CCCC, which has c.15-20% higher pressure on construction companies’ cash flow and of its revenue from overseas projects. In 1H20, overseas balance sheet. This is due to the higher portion of public- revenue dropped 16.2% y-o-y to c.Rmb 38bn, accounting for private partnership (PPP) projects after 2016/17, which have 15.5% of total revenue. CRCC and CRG only have c.5% of higher financing requirements for contractors. revenue coming from overseas, hence the negative impact is less compared to CCCC. Despite efforts to enhance cash collection, longer account receivable days and suspension of collection of tolls from

US ownership in H-shares Operating cash outflow in 9M20

% RMB bn 40 45 35 40 30 35 25 30 25 20 20 15 15 10 10 5 5 0 0 CCCC CRCC CRRC CRCC CCCC CRG

Nov-20 Jan-21 9M19 9M20

Gross margin in 9M20

14% 12%

10%

8%

6%

4%

2%

0% CRCC CCCC CRG

9M19 9M20

Source: Companies, DBS HK

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Industry Focus

China Infrastructure Sector

Strong new growth potential for other sections should be called in the next two to three years; and 2) HSR: the government’s HSR target is 2021 transportation investment target is lower than 2020. c.70,000km by 2035 vs c.39,000km as of the end of 2020. Despite a challenging 1Q20, transportation investment in With more than 15,000km of new length under construction 2020 had increased by 6.6% y-o-y to Rmb 3.4tr, exceeding or in the planning stage, we expect c.2,500km p.a. to be 2020’s target of Rmb 2.6tr. Meanwhile, the MoT has set a completed in 2021/22. lower target for 2021 at Rmb 2.4tr. This raised concerns that infrastructure construction growth may slow after years of Highway: stable investment ahead. Highway FAI has high investments. recovered strongly after 1Q20. In 11M20, highway FAI was 11% y-o-y higher at Rmb 2.25tr, exceeding the original 2020 Target and actual transportation investment target of Rmb 1.8tr. Looking ahead, we expect stable investment in this segment despite the high base. The RMB bn demand for expressways in under-developed regions would 4000 continue to be the growth driver in the next few years. In the longer term, the demand for self-driving cars would also 3500 require upgrading of highways to take place. 3000

2500 Besides transportation FAI, municipal works is another 2000 important future driver for construction companies. We see 1500 good prospects from:

1000 Urban railway transit: Expect more than 1000km new length 500 additions p.a. New contracts for urban railway transit (“URT”) 0 projects would have declined in 2000 because the COVID-19 2019 2020 2021F outbreak had suspended on-site bidding. However, we Target Actual remain positive on this segment and expect new contract values to recover to double-digit growth in 2021/22. Source: MoT, DBS HK URT system is one of the seven “new infrastructure” pillars. But we expect growth to be better than expected. Looking According to China Urban Rail Transit Association, as of the ahead, we expect the sector to maintain a steady growth end of 2020, URT had 1,242km of new length additions with th pace as per the 14 Five Year Plan (“FYP”) (2020-2025). We total length reaching c.8,000km across 43 cities. expect companies to continue to see double digit growth in new contract wins in the next 2-3 years. This is supported by In 9M20, the National Development and Reform the government’s ambitious targets to establish a Commission (“NDRC”) had approved a new URT construction comprehensive modern transport system by 2035. plan for Xuzhou and Hefei, and approved the construction plan adjustment for Xiamen, Shenzhen and Fuzhou. Total Railway: upside potential from Tibet-Sichuan Railway and new length approved is 295km, and investment is budgeted High-speed railway contracts. In 2020, railway FAI was c.Rmb at Rmb 247bn. 780bn, lower than c.Rmb 800bn in 2018/19. New length additions were 4,585km (8,489km in 2019), of which high- speed railway (HSR) accounted for 2,416km (5,474km in 2019). By the end of 2020, total railway length in China was c.146,000km, which is slightly lower than the target of 150,000 km by the end of 13th FYP.

Though the growth in 2020 was lower than expected, we expect FAI in 2021 and 2022 to recover to over Rmb 800bn. There is potential upside to this target, mainly from 1) Tibet- Sichuan railway: the Ya’an- Linzhi section was approved and construction commenced at the end of 2020. Total investment for the project is c.Rmb 320bn and major bids

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Industry Focus

China Infrastructure Sector

URT development targets Based on the near-term URT length targets of major Tier 1 and Tier 2 cities, we expect new length additions to be Length by Sep 2020 Mid-term target strong at more than 1000km per year for 2021 and 2022. City (km) length The average cost of construction is Rmb 600-800m per Shanghai 809.9 1050km by 2025 kilometer. Thus, we estimate the investment in URT is Beijing 771.8 1000km by 2025 around Rmb c.800bn for 2020-22F, up from c.Rmb 600bn in Guangzhou 508 792km by 2023 Nanjing 394.3 600km by 2023 2019. Chengdu 491.65 500km by 2020, 600km by 2022 Overall, we expect the total investment for railway, highway Chongqing 328.5 500km in 2022, and URT to increase to c.Rmb 4,000bn in 2020-22F, up from 750km in 2025 Rmb 3,500bn in 2018/19. Wuhan 387.5 606km by 2024 Dalian 181.3 300km by 2020 Tianjin 238.8 513km by 2020 Suzhou 210.1 353km by 2023 Zhengzhou 194.7 326km by 2024 Shenzhen 394.88 570km by 2022 Shenyang 211.81 267km by 2024 Hangzhou 202.18 516km by 2022 Others 1816.13 Total 7141.55 Source: DBS HK

Investment projection for railways, highways and URT

Rmb bn 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F Railway 658 690 809 753 802 801 803 803 782 810 810 y-o-y % 5% 17% -7% 6% 0% 0% 0% -3% 4% 0% Highway 1,278 1,369 1,546 1,661 1,779 2,116 2,134 2,190 2,408 2,400 2,400 y-o-y % 7% 13% 7% 7% 19% 1% 3% 10% 0% 0% Urban rail 191.4 216.5 289.9 368.3 384.7 476.2 547.0 596 797 809 778 transit y-o-y % 13% 34% 27% 4% 24% 15% 9% 34% 1% -4% Total 2,127 2,276 2,645 2,782 2,965 3,393 3,483 3,588 3,988 4,019 3,988 y-o-y % 7.0% 16.2% 5.2% 6.6% 14.5% 2.6% 3.0% 11.1% 1% -1%

Source: MoT, DBS HK

Housing construction: new growth opportunities. Housing each year. However, this market is very fragmented. As construction is a fast-growing segment for construction railway contractors, CRG and CRCC ‘s market share in companies. In 9M20, housing construction had 76.2% and housing construction is small at the moment. The future 53.5% y-o-y growth for CRCC and CRG respectively. growth driver could be enlarging market share through the PPP model. Urbanisation and metropolitan construction are The housing construction market size is very large. We also strong drivers in this segment. expect total investment in this segment to be Rmb 15-16tr

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Industry Focus

China Infrastructure Sector

Monthly FAI in railways Monthly FAI in highways

Annual FAI in railways Annual FAI in highways

High-speed railway length growth Urban rail transit length and investment

Source: CEIC, China Urban Rail Transit Association, DBS HK

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Industry Focus

China Infrastructure Sector

Double-digit growth in new contract wins is not in the price. usually moves ahead of the share price. New contract wins Supported by analysis on the major infrastructure slowed down in 2018-19, which contributed to the weak segments, we expect construction companies to post 10- share performance from 2019 till now. The trend is 25% y-o-y growth in new contracts in FY20-22F. gradually recovering from 2019-20 and is likely to be sustained in the future, but has yet to be reflected in the The growth in new contracts clinched is one of the critical share price. factors to drive share price. The trend in new contract wins

CCCC’s share price vs new contract wins CRCC’s share price vs new contract wins

HK$ HK$ 20.0 80% 20.0 100% 80% 60% 15.0 15.0 60% 40% 40% 10.0 20% 10.0 20% 0% 0% 5.0 5.0 -20% -20%

0.0 -40% 0.0 -40%

2012

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2020

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2013

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2018

2019

2020 2021 share price (LHS) share price (LHS) CCCC New contract growth (RHS) CRCC New contract growth (RHS) CRG’s share price vs new contract wins

HK$ 14.0 100% 12.0 80% 10.0 60% 8.0 40% 6.0 20% 4.0 0% 2.0 -20%

0.0 -40%

2012

2013

2014

2015

2016

2017

2018

2019

2020 2021

share price (LHS) CRG New contract growth (RHS) Source: Bloomberg Finance L.P., Company, DBS HK

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Industry Focus

China Infrastructure Sector

Financing policy remains supportive Looking ahead, we expect SPB’s scale to reduce in the longer term due to increasing repayment pressure. In 2019, Supportive fiscal policy likely to remain in 2021. 2020 saw an the annual interest expense on SPB reached Rmb 265bn, expansionary monetary policy to boost economy growth up from Rmb 37bn in 2016. In 9M20, this reached a after the COVID-19 outbreak. We expect the supportive historical high of Rmb 290bn. Still, we expect SPB’s new policy will continue in 2021, though at a smaller scale. issuance to drop slightly but to remain high at c.Rmb 3tr in 2021. Increase in PPP projects. PPP (public-private partnership) projects were on an increasing trend in 2020. By Nov 2020, Outstanding SPB held by local governments the total number of PPP projects on record stood at 13,224 with total investment amounting to Rmb 19tr, representing Rmb bn an 8% increase compared with Rmb 17.6tr in 2019. 4,500 Municipal engineering, traffic and transportation and 4,000 ecological construction and environment protection saw the 3,500 three highest values of projects announced. 3,000

After “controlling quality on top of growth” in 2018-19, we 2,500 expect the PPP projects to swing to an upward trajectory, 2,000 though growth ahead may not be as strong as the level in 1,500 2020. The main focus is on improving the implementation 1,000 ratio and compliance. 500 0

Total PPP project database

Jul-19

Jul-20

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Nov-19

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Mar-19

Mar-20 May-19 May-20 Source: Wind, DBS HK Indentification phase C-REIT provides new funding channels and fast asset 21% turnover. China Securities Regulatory Commission (CSRC) Preparation and National Development and Reform Commission (NDRC) Implementation phase had jointly announced a pilot programme for infrastructure phase 7% C-REITs on 30 April 2020, followed by CSRC’s draft guideline Purchasing 57% on the same day. On 7 August, CSRC issued a final version phase 15% of the guideline, indicating the official launch of C-REITs. The underlying assets include infrastructure projects and industrial properties.

Infrastructure plays may have toll roads/bridge assets that fit in with C-REIT’s criteria, which includes 1) positive Source: Wind, DBS HK operating cash flow in recent 3 years; 2) initial fund size no lower than Rmb 0.5bn; 3) expected dividend yield no lower Special project bonds remains high. Another important than 4%, etc. Construction companies have indicated their financing tool is local government bonds, especially special intention to participate in C-REITs and are in the process of project bonds (“SPB”) which enable local governments to pay reviewing projects. for large infrastructure projects and is not counted in the national deficit. In 2020, SPB issuance increased by 75% to Rmb 3.75tr, from 2019’s Rmb 2.15tr. In Jan-Oct 2020, around 55% of SPB financing was used for infrastructure construction, including urbanisation, municipal works and transportation.

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Industry Focus

China Infrastructure Sector

Valuation and potential catalysts Attractive dividend yield. At the current share price, the FY21F dividend yield is attractive at 6-8% on a 15-20% Undervalued sector. As discussed, we believe the sector payout ratio. We expect the companies to maintain or fundamentals are yet to be reflected in the share price. slightly improve their payout ratios in FY21-22F. While trading at a historical low 2-3x P/E, we expect the construction companies to deliver c.10-17% earnings CAGR Factors that led to a weak 2020 performance should start to for FY20-22F. The current valuation is especially low for H- fade in 2021: shares, when the A-shares are trading at a higher level of 4- 1) US sanctions gradually digested: The US-China 6x FY21F P/E. Though we don’t expect the valuation to relationship should be more predictable under the recover to the 3-year average given the current challenging Biden administration. The ban on US investors from environment, we still see large room for valuations to investing in certain Chinese companies is likely to stay, recover from the current level. but no further inclusions are expected. Ownership levels of US investors in infrastructure companies has PE vs earnings growth already dropped from 30-40% to 10-15%. We believe the short-term uncertainties have been digested. 3.5 CRG 2) Recovering from a challenging 2020: We expect lower 3 CCCC pressure on cash collection cycle in 2021/22. On one 2.5 hand, its upstream and downstream companies’ CRCC finance condition is improving after COVID-19. On the 2 other hand, we will see more PPP projects progressing 1.5 to the operating stage in the years to come, which will

FY21F P/E FY21F generate positive operating cash flow. 1 Potential catalysts are: 1) Higher-than-expected 0.5 infrastructure investment; 2) Approval of C-REITs in 2021, 0 which will unlock value of these companies’ projects and 0 5 10 15 20 further enhance balance sheet and cash flow; and 3) Gross FY20-22F earnings margin recovery on railway segment on the assumption that China Railway will gradually take the proposals to allow Source: Bloomberg Finance L.P., DBS HK floating ground material costs with market price, which will ease pressure on contractors’ financials. At the current A-H gap on FY21F P/E stage, the ground material costs in the railway construction contract is not flexible, bringing margin pressure when the X material costs goes up. 7 6 Risks: 1) China-US tensions worsen, raising concerns on further sanctions on China SoEs; 2) tightening fiscal policy 5 and financing support on infrastructure sector given the 4 already-heavy local government debt and large amount of 3 “hidden liabilities”. 2 1 0 CRCC CCCC CRG

A share H share

Source: Bloomberg Finance L.P., DBS HK

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Industry Focus

China Infrastructure Sector

Stock picks: Top pick CRG (390 HK) We continue to like CRCC (1186 HK). In 9M20, the company Our top pick is CRG (390 HK) based on: posted higher deal flow of c.24.7% y-o-y, driven by the 1) 24.3% y-o-y higher new contract wins in 9M20, the growth in railway and housing construction segment. The highest among its peers. We expect the company to progress of spinning off and listing its subsidiary CRCHI maintain this growth momentum, especially with its (China Railway Construction Heavy Industry) on the Science leading bid for the Sichuan-Tibet Railway project; and Technology Innovation Board of Shanghai Stock 2) improving cash flow in 9M20 with 7.5% y-o-y drop in Exchange is on track. This would help it to unlock the value operating cash outflows helped by better cash of CRCHI, increase the liquidity and value of CRCC's shares collection management and prepayment from its real in CRCHI, as well as increase CRCC’s financing capability. estate business, while peers are seeing higher cash CCCC (1800 HK) is the least preferred as its new contract outflows; wins was weaker and earnings were below market 3) lower net gearing of 43% as of Sep 2020 vs 59% in Sep expectations. 9M20 new contract value increased by 12.5% 2019; and y-o-y, which is the lowest among peers. It has higher 4) CRG is not on the US’s blacklist. exposure in segments with slower growth or higher

uncertainties, such as bridge and roads and overseas New contract wins growth momentum projects. 9M20 profit declined by c.25% y-o-y to Rmb 10bn due to1) toll waivers on BOT highway projects during COVID- Rmb bn 19 period; and 2) higher impairment loss. Still, we expect 1600 +24.7% earnings growth to gradually recover to 13% y-o-y in FY21F +24.3% 1400 supported by new contract wins. 1200 We have BUY for CRG and CRCC and HOLD for CCCC. We 1000 +12.5% assign a target multiple of 3-4x on them, which is at a 800 discount of their 3-year average to reflect slower 600 infrastrcuture investment growth during the “new normal” 400 and current uncertainties surrounding overseas projects and US sanctions. 200 0 CRCC CCCC CRG 9M19 9M20

Source: Companies, DBS HK

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Peers valuation

F Y20- 22 Mkt PE PE Yield Yield P/Bk P/Bk EV/EBITDA ROE Earnings Currency Price Cap F iscal 20F 21F 20F 21F 20F 21F 20F 21F 20F CAGR Company Name Code Local$ US$m Yr x x % % x x x x % %

China Comm. Cons. 'H'* 1800 HK HKD 4.00 15,552 Dec 3.1 2.7 6.5 7.3 0.3 0.2 8.9 8.4 8.5 9.4 China Railway Con.'H'* 1186 HK HKD 5.15 15,778 Dec 2.8 2.4 5.3 6.3 0.3 0.2 3.4 3.5 9.4 16.7 China Railway Group 'H'* 390 HK HKD 3.98 19,918 Dec 3.3 3.1 5.3 5.7 0.4 0.4 4.2 4.0 12.3 13.2 Cstcn.Inthdg. 3311 HK HKD 4.88 3,178 Dec 4.0 3.6 7.5 8.1 0.5 0.4 5.4 4.5 12.8 12.9 Baoye Group 'H' 2355 HK HKD 3.91 284 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Beijing Urban Con. 'H' 1599 HK HKD 2.09 364 Dec 3.0 2.8 8.3 9.2 0.4 0.4 3.2 2.8 14.5 n.a. Asia Allied Infr.Hdg.# 711 HK HKD 0.60 141 Mar n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Comm. Cons. 'A'* 601800 CH CNY 7.32 15,552 Dec 6.7 6.0 3.0 3.4 0.6 0.5 10.3 9.7 8.5 9.4 China Railway Con.'A'* 601186 CH CNY 8.11 15,778 Dec 5.4 4.5 2.8 3.4 0.5 0.4 4.5 4.6 9.4 16.7 China Railway Group 'A'* 601390 CH CNY 5.65 19,918 Dec 5.7 5.3 3.1 3.4 0.7 0.6 5.3 5.0 12.3 13.2 China State Con.Engr.'A' 601668 CH CNY 5.04 32,645 Dec 4.7 4.2 5.1 5.6 0.7 0.6 6.4 5.3 14.6 10.5

# FY21: FY22; FY22: FY23 Source: Thomson Reuters, *DBS HK

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Industry Focus

China Infrastructure Sector

Railway new contract growth Highway new contract growth

Rmb bn +19.4% (Rmb bn) 200 +24.0% 250 +11.7% +66.0% 180 -19.6% 160 200 140 120 150 100 80 100 +170.7% 60 40 50 20 0 0 CRCC CCCC CRG CRCC CCCC CRG 9M19 9M20 9M19 9M20 Municipal works and others new contract growth CCCC infrastructure 9M20 new contract breakdown

Rmb bn Port Overseas 1000 +43.9% Construction Projects 900 +17.9% 4% 20% 800 700 600 +20.9% 500 Road and 400 Bridge Municipal and 300 Construction Others 200 29% 100 46% 0 Railway CRCC CCCC CRG Construction 9M19 9M20 1%

CRCC infrastructure 9M20 new contract breakdown CRG infrastructure 9M20 new contract breakdown

Others Others 6% Railway Railway 15% 7% 16%

Highway Housing 13% construction Highway Housing 28% construction 18% 41% Urban rail transit Urban rail 9% transit Municipal Municipal 9% works works 16% 22%

Source: Companies, DBS HK

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China Communications Construction PE (1800 HK) China Communications Construction PB (1800 HK)

x x 3.0 20 18 2.5 16 2.0 14 +2SD: 1.8x 12 +2SD: 12.1x 1.5 10 +1SD: 9.6x +1SD: 1.3x 8 Avg: 7.1x 1.0 6 Avg: 0.9x 4 -1SD: 4.7x 0.5 -1SD: 0.5x 2 -2SD: 2.2x

0 0.0 -2SD: 0x

Jan-09

Jan-13

Jan-17

Jan-21

Jan-09

Sep-11

Jan-13

Sep-15

Jan-17

Sep-19

Jan-21

May-10

May-14

May-18

Sep-11

Sep-15

Sep-19

May-10 May-14 May-18 China Railway Construction PE (1186 HK) China Railway Construction PB (1186 HK)

x x 3.0 30 25 2.5

20 +2SD: 19.2x 2.0 +2SD: 1.9x 15 +1SD: 14x 1.5 +1SD: 1.4x 10 Avg: 8.7x 1.0 Avg: 1x 5 -1SD: 3.5x 0.5 -1SD: 0.5x 0

-5 -2SD: -1.7x 0.0 -2SD: 0x

Jan-09

Jan-13

Jan-17

Jan-21

Jan-09

Jan-13

Jan-17

Jan-21

Sep-11

Sep-15

Sep-19

May-10

May-14

May-18

Sep-11

Sep-15

Sep-19

May-10 May-14 May-18 China Railway Group PE (390 HK) China Railway Group PB (390 HK)

x x 2.5 20 18 2.0 16 +2SD: 15.8x 14 +2SD: 1.6x 1.5 12 +1SD: 12.1x +1SD: 1.3x 10 8 Avg: 8.5x 1.0 Avg: 0.9x 6 4 -1SD: 4.8x 0.5 -1SD: 0.5x 2 -2SD: 1.1x -2SD: 0.1x

0 0.0

Jan-09

Jan-13

Jan-17

Jan-21

Jan-09

Jan-13

Jan-17

Jan-21

Sep-11

Sep-15

Sep-19

May-10

May-14

May-18

Sep-11

Sep-15

Sep-19

May-10 May-14 May-18 Source: Thomson Reuters, DBS HK

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Industry Focus

China Infrastructure Sector

China Railway Group (390 HK EQUITY, HK$3.98, BUY, Target Price 12-mth HK$ 5.30) China Railway Group (601390 CH Equity, RMB5.65, HOLD, Target Price 12-mth RMB 6.20) Forecast & Valuation General Data FY Dec (RMB m) 2019A 2020F 2021F 2022F At A Glance Turnover 850,843 963,858 1,099,010 1,207,058 Issued Capital - H shares (m shs) 4,207 EBITDA 51,493 52,151 57,185 66,424 - Non H shrs (m shs) 20,364 Pre-tax Profit 33,187 33,945 36,374 43,480 Net Profit 23,678 24,401 26,147 31,255 H shs as a % of Total 17 Net Pft (Pre Ex) (core profit) 23,678 24,401 26,147 31,255 Total Mkt Cap (HK$m/US$m) 154,145 / 19,881 Net Profit Gth (Pre-ex) (%) 37.7 3.1 7.2 19.5 Major Shareholders (%) EPS (RMB) 0.96 0.99 1.07 1.27 China Railway Engineering Corp. Ltd. 56.2 EPS (HK$) 1.15 1.19 1.27 1.52 EPS Gth (%) 28.0 3.2 7.2 19.5 Major H Shareholders (As % of H shares) Diluted EPS (HK$) 1.08 1.11 1.20 1.45 Nil DPS (HK$) 0.20 0.21 0.23 0.28 H Shares-Free Float (%) 100.0 BV Per Share (HK$) 9.24 10.16 11.15 12.37 3m Avg. Daily Val. (US$m) 11.09 PE (X) 3.5 3.3 3.1 2.6 P/Cash Flow (X) 3.7 3.0 3.5 2.3 P/Free CF (X) 34.6 10.6 19.0 5.0 EV/EBITDA (X) 4.1 4.2 4.0 3.5 Net Div Yield (%) 5.1 5.3 5.7 6.9 P/Book Value (X) 0.4 0.4 0.4 0.3 Net Debt/Equity (X) 0.3 0.3 0.3 0.3 ROAE (%) 13.6 12.3 12.0 13.0

Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 0.97 1.06 1.17 Other Broker Recs: B:22 S:0 H:0

Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Turnover 850,843 963,858 1,099,010 1,207,058 Net Fixed Assets 66,154 75,199 82,603 88,626 Cost of Goods Sold (770,979) (874,055) (995,395) (1,091,661 Invts in Assocs & JVs 59,879 61,779 64,259 66,995 Gross Profit 79,864 89,803 103,616 115,397) Other LT Assets 220,238 234,423 251,146 265,310 Other Opg (Exp)/Inc (42,396) (50,220) (61,311) (65,589) Cash & ST Invts 158,159 170,725 195,642 213,004 Operating Profit 37,468 39,584 42,305 49,809 Inventory 40,945 47,330 53,967 59,272 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 203,256 189,255 195,391 207,663 Associates & JV Inc 2,460 1,900 2,480 2,736 Other Current Assets 307,410 334,598 368,658 391,060 Net Interest (Exp)/Inc (6,741) (7,539) (8,411) (9,065) Total Assets 1,056,041 1,113,308 1,211,665 1,291,930 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 112,311 100,000 120,000 120,000 Pre-tax Profit 33,187 33,945 36,374 43,480 Other Current Liab 563,723 586,795 628,954 668,650 Tax (7,808) (7,986) (8,558) (10,230) LT Debt 118,934 149,342 164,276 180,704 Minority Interest (1,701) (1,558) (1,669) (1,995) Other LT Liabilities 15,745 11,596 10,943 8,064 Preference Dividend 0 0 0 0 Shareholder’s Equity 221,310 239,999 260,248 285,272 Net Profit 23,678 24,401 26,147 31,255 Minority Interests 24,018 25,576 27,244 29,239 Net profit before Except. 23,678 24,401 26,147 31,255 Total Cap. & Liab. 1,056,041 1,113,308 1,211,665 1,291,930 EBITDA 51,493 52,151 57,185 66,424 Sales Gth (%) 14.9 13.3 14.0 9.8 Non-Cash Wkg. Cap (12,112) (15,612) (10,938) (10,655) EBITDA Gth (%) 28.1 1.3 9.7 16.2 Net Cash/(Debt) (73,086) (78,617) (88,635) (87,700) Opg Profit Gth (%) 30.5 5.6 6.9 17.7 Effective Tax Rate (%) 23.5 23.5 23.5 23.5 Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Pre-Tax Profit 25,379 33,945 36,374 43,480 Revenues (RMB m) Dep. & Amort. 11,565 10,668 12,400 13,879 Infrastructure construction 762,084 869,400 1,003,27 1,122,96 Tax Paid (8,426) (7,986) (8,558) (10,230) Survey, design and consulting 17,031 18,053 19,1365 20,0933 Assoc. & JV Inc/(loss) (2,460) (1,900) (2,480) (2,736) services Engineering equip & comp mfg 24,322 29,186 33,564 36,921 (Pft)/ Loss on disposal of FAs 0 0 0 0 Property & others 114,064 119,767 125,756 132,043 Chg in Wkg.Cap. (80,688) (15,336) (22,644) (18,018) Inter-segment eliminations (66,658) (72,548) (82,721) (104,962) Other Operating CF 76,828 7,539 8,411 9,065 Total 850,843 963,858 1,099,01 1,207,05 Net Operating CF 22,198 26,929 23,503 35,440 0 8 Capital Exp.(net) (19,838) (19,210) (19,210) (19,210) Key Assumptions Other Invts.(net) (7,148) 0 0 0 Backlog (Rmb bn) 3,361.2 4,468.2 5,701.3 7,126.5 Invts in Assoc. & JV (19,419) 0 0 0 New contract (Rmb bn) 2,164.9 2,679.8 3,217.4 3,875.9 Div from Assoc & JV 0 0 0 0 Gross margin (%) 9.4 9.3 9.4 9.6 Other Investing CF 6,226 2,073 2,261 2,635 Net gearing (%) 37.9 37.1 37.8 34.2 Net Investing CF (40,179) (17,137) (16,949) (16,575) Div Paid (5,575) (5,711) (5,899) (6,231) Chg in Gross Debt 35,625 18,097 34,934 16,428 Capital Issues 18,992 0 0 0 Other Financing CF (10,827) (9,612) (10,672) (11,700) Net Financing CF 38,215 2,774 18,363 (1,503) Currency Adjustments 184 0 0 0 Chg in Cash 20,418 12,566 24,917 17,362 Source: Company, DBS HK

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Industry Focus

China Infrastructure Sector

China Railway Construction (1186 HK EQUITY, HK$5.15, BUY, Target Price 12-mth HK$ 7.50) China Railway Construction (601186 CH Equity, RMB8.11, HOLD, Target Price 12-mth RMB 9.00) Forecast & Valuation General Data FY Dec (RMB m) 2019A 2020F 2021F 2022F At A Glance Turnover 830,452 907,716 1,004,811 1,112,196 Issued Capital - H shares (m shs) 2,076 EBITDA 49,429 46,569 49,443 53,609 - Non H shrs (m shs) 11,503 Pre-tax Profit 28,027 27,895 33,956 39,314 Net Profit 20,197 20,531 24,679 27,952 H shs as a % of Total 15 Net Pft (Pre Ex) (core profit) 20,197 20,531 24,679 27,952 Total Mkt Cap (HK$m/US$m) 122,790 / 15,837 Net Profit Gth (Pre-ex) (%) 12.6 1.7 20.2 13.3 Major Shareholders (%) EPS (RMB) 1.49 1.51 1.82 2.06 China Railway Construction Gp. Co Ltd 60.4 EPS (HK$) 1.78 1.81 2.17 2.46 EPS Gth (%) 12.6 1.7 20.2 13.3 Major H Shareholders (As % of H shares) Diluted EPS (HK$) 1.78 1.81 2.17 2.46 Nil DPS (HK$) 0.25 0.27 0.33 0.37 H Shares-Free Float (%) 100.0 BV Per Share (HK$) 18.50 20.04 21.89 23.98 3m Avg. Daily Val. (US$m) 21.18 PE (X) 2.9 2.8 2.4 2.1 P/Cash Flow (X) 1.5 2.5 2.3 2.1 P/Free CF (X) 7.6 nm nm nm EV/EBITDA (X) 2.2 3.4 3.5 3.6 Net Div Yield (%) 4.9 5.3 6.3 7.2 P/Book Value (X) 0.3 0.3 0.2 0.2 Net Debt/Equity (X) CASH 0.2 0.2 0.2 ROAE (%) 10.6 9.4 10.4 10.7

Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 1.53 1.71 1.91 Other Broker Recs: B:19 S:0 H:0

Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Turnover 830,452 907,716 1,004,811 1,112,196 Net Fixed Assets 56,250 66,967 81,590 98,175 Cost of Goods Sold (750,365) (825,257) (911,958) (1,007,716 Invts in Assocs & JVs 0 0 0 0 Gross Profit 80,087 82,459 92,853 104,481) Other LT Assets 269,176 283,646 298,526 313,911 Other Opg (Exp)/Inc (50,825) (53,974) (58,234) (64,494) Cash & ST Invts 156,887 161,043 161,478 157,383 Operating Profit 29,263 28,484 34,619 39,987 Inventory 194,892 214,381 235,819 259,401 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 125,098 135,106 145,914 157,588 Associates & JV Inc 2,396 2,636 3,163 3,796 Other Current Assets 278,937 309,620 340,582 374,640 Net Interest (Exp)/Inc (3,632) (3,225) (3,827) (4,468) Total Assets 1,081,239 1,170,763 1,263,909 1,361,098 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 42,749 30,000 30,000 30,000 Pre-tax Profit 28,027 27,895 33,956 39,314 Other Current Liab 646,230 664,276 715,960 771,941 Tax (5,403) (5,579) (7,131) (8,256) LT Debt 114,080 176,501 191,501 201,501 Minority Interest (2,426) (1,785) (2,146) (3,106) Other LT Liabilities 16,159 18,728 22,067 26,409 Preference Dividend 0 0 0 0 Shareholder’s Equity 209,960 227,411 248,388 272,148 Net Profit 20,197 20,531 24,679 27,952 Minority Interests 52,062 53,847 55,993 59,099 Net profit before Except. 20,197 20,531 24,679 27,952 Total Cap. & Liab. 1,081,239 1,170,763 1,263,909 1,361,098 EBITDA 49,429 46,569 49,443 53,609 Sales Gth (%) 13.7 9.3 10.7 10.7 Non-Cash Wkg. Cap (47,303) (5,169) 6,356 19,688 EBITDA Gth (%) 15.4 (5.8) 6.2 8.4 Net Cash/(Debt) 58 (45,458) (60,023) (74,118) Opg Profit Gth (%) 5.4 (2.7) 21.5 15.5 Effective Tax Rate (%) 19.3 20.0 21.0 21.0 Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Pre-Tax Profit 28,027 27,895 33,956 39,314 Revenues (RMB m) Dep. & Amort. 17,770 15,448 11,660 9,826 Construction operations 724,545 797,000 892,640 999,756 Tax Paid (5,403) (5,579) (7,131) (8,256) Survey, design & consultancy 18,085 20,255 22,281 24,509 Assoc. & JV Inc/(loss) (2,396) (2,636) (3,163) (3,796) Manufacturing operations 18,105 19,553 21,117 22,807 (Pft)/ Loss on disposal of FAs 0 0 0 0 Other businesses 113,155 123,033 131,324 140,184 Chg in Wkg.Cap. (8,684) (14,893) (13,185) (13,990) Elimination (43,437) (52,125) (62,550) (75,060) Other Operating CF 10,693 3,225 3,827 4,468 Total 830,452 907,716 1,004,81 1,112,19 Net Operating CF 40,006 23,461 25,964 27,566 1 6 Capital Exp.(net) (32,265) (30,000) (30,000) (30,000) Key Assumptions Other Invts.(net) 0 0 0 0 New contract (RMB m) 2,006,85 2,215,68 2,432,33 2,670,64 Invts in Assoc. & JV 0 0 0 0 Backlog contract (Rmb m) 3,273,634.4 3,835,896.3 4,230,575.2 4,653,249.1 Div from Assoc & JV 0 0 0 0 Gross margin (%) 7.29.6 2.79.1 7.09.2 9.59.4 Other Investing CF (17,904) (3,000) (3,000) (3,000) Net gearing (%) 13.5 16.5 20.0 22.6 Net Investing CF (50,169) (33,000) (33,000) (33,000) Div Paid (16,325) (3,080) (3,702) (4,193) Chg in Gross Debt (6,280) 20,000 15,000 10,000 Capital Issues 51,276 0 0 0 Other Financing CF (8,473) (3,225) (3,827) (4,468) Net Financing CF 20,198 13,695 7,471 1,339 Currency Adjustments 171 0 0 0 Chg in Cash 10,206 4,156 435 (4,095) Source: Company, DBS HK

Page 15

Industry Focus

China Infrastructure Sector

China Comm. Construction (1800 HK EQUITY, HK$4.00, HOLD, Target Price 12-mth HK$ 4.00) China Comm. Construction (601800 CH Equity, RMB7.32, HOLD, Target Price 12-mth RMB 7.50) Forecast & Valuation General Data FY Dec (RMB m) 2019A 2020F 2021F 2022F At A Glance Turnover 552,542 594,383 646,143 699,829 Issued Capital - H shares (m shs) 4,418 EBITDA 46,384 46,531 51,710 55,511 - Non H shrs (m shs) 11,747 Pre-tax Profit 27,462 25,475 28,721 30,483 Net Profit 20,094 17,615 19,861 21,079 H shs as a % of Total 27 Net Pft (Pre Ex) (core profit) 20,094 17,615 19,861 21,079 Total Mkt Cap (HK$m/US$m) 121,147 / 15,625 Net Profit Gth (Pre-ex) (%) 1.4 (12.3) 12.7 6.1 Major Shareholders (%) EPS (RMB) 1.24 1.09 1.23 1.30 China Communications Construction Group Limited 79.8 EPS (HK$) 1.49 1.30 1.47 1.56 EPS Gth (%) 1.4 (12.3) 12.7 6.1 Major H Shareholders (As % of H shares) Diluted EPS (HK$) 1.49 1.30 1.47 1.56 Nil DPS (HK$) 0.28 0.26 0.29 0.31 H Shares-Free Float (%) 100.0 BV Per Share (HK$) 14.76 15.78 16.99 18.26 PE (X) 2.7 3.1 2.7 2.6 3m Avg. Daily Val. (US$m) 24.45 P/Cash Flow (X) 9.1 9.9 1.8 4.9 P/Free CF (X) nm nm nm nm Key Assumptions EV/EBITDA (X) 7.9 8.9 8.4 8.6 FY Dec 2019A 2020F 2021F 2022F Net Div Yield (%) 7.0 6.5 7.3 7.8 Backlog (RMB bn) 1,990.4 2,394.7 2,781.7 3,171.1 P/Book Value (X) 0.3 0.3 0.2 0.2 Net Debt/Equity (X) 0.7 0.8 0.8 0.9 New contracts (RMB bn) 962.7 1,067.8 1,185.2 1,316.6 ROAE (%) 10.8 8.5 9.0 8.8 Gross margin (%) 12.5 12.3 12.3 12.3

Net gearing (%) 75.1 85.8 86.8 93.5 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 1.10 1.25 1.34 Other Broker Recs: B:10 S:1 H:6

Income Statement (RMB m) Balance Sheet (RMB m) FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Turnover 552,542 594,383 646,143 699,829 Net Fixed Assets 64,373 70,486 77,034 84,066 Cost of Goods Sold (483,411) (521,314) (566,545) (613,987) Invts in Assocs & JVs 51,398 51,275 51,146 51,011 Gross Profit 69,131 73,069 79,598 85,842 Other LT Assets 478,274 438,534 467,259 496,321 Other Opg (Exp)/Inc (35,060) (39,798) (42,246) (45,822) Cash & ST Invts 126,752 106,320 117,227 106,590 Operating Profit 34,071 33,271 37,352 40,020 Inventory 62,613 51,648 72,527 62,046 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 223,768 264,766 266,311 232,198 Associates & JV Inc 85 (123) (129) (135) Other Current Assets 116,236 133,671 153,722 176,780 Net Interest (Exp)/Inc (6,694) (7,674) (8,502) (9,402) Total Assets 1,123,414 1,116,701 1,205,226 1,209,012 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 76,379 76,379 76,379 76,379 Pre-tax Profit 27,462 25,475 28,721 30,483 Other Current Liab 451,960 411,733 450,113 402,788 Tax (5,848) (5,859) (6,606) (7,011) LT Debt 265,048 290,048 320,048 350,048 Minority Interest (1,520) (2,000) (2,255) (2,393) Other LT Liabilities 33,617 26,280 27,833 29,444 Preference Dividend 0 0 0 0 Shareholder’s Equity 229,916 243,766 260,104 277,211 Net Profit 20,094 17,615 19,861 21,079 Minority Interests 66,494 68,494 70,749 73,142 Net profit before Except. 20,094 17,615 19,861 21,079 Total Cap. & Liab. 1,123,414 1,116,701 1,205,226 1,209,012 EBITDA 46,384 46,531 51,710 55,511 Sales Gth (%) 13.1 7.6 8.7 8.3 Non-Cash Wkg. Cap (49,343) 38,352 42,447 68,235 EBITDA Gth (%) 6.6 0.3 11.1 7.4 Net Cash/(Debt) (214,675) (260,107) (279,200) (319,837) Opg Profit Gth (%) 2.3 (2.3) 12.3 7.1 Effective Tax Rate (%) 21.3 23.0 23.0 23.0 Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F Pre-Tax Profit 27,462 25,475 28,721 30,483 Revenues (RMB m) Dep. & Amort. 12,228 13,383 14,486 15,626 Construction 483,525 522,950 573,513 625,965 Tax Paid (4,613) (5,848) (5,859) (6,606) Design 33,731 35,632 36,829 38,063 Assoc. & JV Inc/(loss) (85) 123 129 135 Dredging 34,063 34,578 34,578 34,578 (Pft)/ Loss on disposal of FAs 2,276 0 0 0 Port Machinery 0 0 0 0 Chg in Wkg.Cap. (38,677) (35,336) (16,229) (38,005) Others 1,223 1,223 1,223 1,223 Other Operating CF 7,340 7,674 8,502 9,402 Total 552,542 594,383 646,143 699,829 Net Operating CF 5,931 5,469 29,751 11,036 Gross Profit (RMB m) Capital Exp.(net) (62,313) (39,462) (36,819) (38,299) Construction 57,270 61,207 67,022 73,054 Other Invts.(net) (2,459) 0 0 0 Design 7,210 6,786 7,072 7,284 Invts in Assoc. & JV (12,017) 0 0 0 Dredging 4,356 4,495 4,841 4,841 Div from Assoc & JV 2,010 0 0 0 Port Machinery 0 0 0 0 Other Investing CF 9,066 4,930 4,927 4,927 Others 295 580 663 663 Net Investing CF (65,713) (34,532) (31,892) (33,372) Total 69,131 73,069 79,598 85,842 Div Paid (3,733) (3,765) (3,523) (3,972) Gross Profit Margins (%) Chg in Gross Debt 42,036 25,000 30,000 30,000 Construction 11.6 11.5 11.5 11.5 Capital Issues 17,940 0 0 0 Design 19.0 17.0 17.2 17.2 Other Financing CF (5,320) (12,604) (13,429) (14,329) Dredging 12.6 13.0 14.0 14.0 Net Financing CF 50,923 8,631 13,048 11,699 Port Machinery 0.0 0.0 0.0 0.0 Currency Adjustments 354 0 0 0 Others 6.5 7.0 8.0 8.0 Chg in Cash (8,505) (20,432) 10,907 (10,637) Total 12.5 12.3 12.3 12.3 Source: Company, DBS HK

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Industry Focus

China Infrastructure Sector

DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 21 Jan 2021 08:29:38 (HKT) Dissemination Date: 21 Jan 2021 09:39:42 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

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Industry Focus

China Infrastructure Sector

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in China Communications Construction Co Ltd (1800 HK), China Railway Construction Corp Ltd (1186 HK), China Railway Group Ltd (390 HK) and China State Construction International Holdings Ltd (3311 HK) recommended in this report as of 19 Jan 2021.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. Compensation for investment banking services: DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from China State Construction International Holdings Ltd (3311 HK) as of 31 Dec 2020. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. United This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority

Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor, International Gate Precinct Building 5, PO Box 506538, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. Financial DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended Centre only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

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China Infrastructure Sector

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as Emirates defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank (Hong Kong) Limited 13 th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: (852) 3668-4181, Fax: (852) 2521-1812

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China Infrastructure Sector

DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, Capital Square, 12 Marina Boulevard, 18 Westlands Road, Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100, Kuala Lumpur, Malaysia. Marina Bay Financial Centre Tower 3 Tel: 852 3668 4181 Tel.: 603 2604 3333 Singapore 018982 Fax: 852 2521 1812 Fax: 603 2604 3921 Tel: 65 6878 8888 e-mail: [email protected] e-mail: [email protected] e-mail: [email protected] Co. Regn No. 198401015984 (128540-U) Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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