Asia Pacific Equity Research 30 October 2016
Overweight CRRC Corp -H 1766.HK, 1766 HK Outlook bullish. Weak Q3 and delayed orders factored Price: HK$7.15 ▼ Price Target: HK$12.50 in. Maintain OW Previous: HK$13.00
3Q16 result expectedly weak; guidance turned positive with MU China demand outlook raised. CRRC reported 3Q NPAT of Rmb2.7B, -16% Infrastructure, Industrials & Y/Y as revenue fell 4% Y/Y while GPM slipped 1.1ppts Y/Y. These Transport results were largely expected in light of CRC’s muted procurement Karen Li, CFA AC YTD. However, we observed that guidance was noticeably more bullish (852) 2800-8589 (inside for takeaways from the briefing) despite the near-term earnings [email protected] Bloomberg JPMA KLI
CRRC Corp - H (Reuters: 1766.HK, Bloomberg: 1766 HK) Rmb in mn, year-end Dec FY14A FY15A FY16E FY17E FY18E Company Data Total Revenue (Rmb mn) 221,977 241,913 220,869 259,046 279,895 Shares O/S (mn) 27,289 Net Profit (Rmb mn) 10,815 11,818 10,235 14,526 17,016 Market Cap (HK$ mn) 195,115 EPS (Rmb) 0.41 0.43 0.38 0.53 0.62 Market Cap ($ mn) 25,160 Revenue growth (%) 12.9% 9.0% (8.7%) 17.3% 8.0% Price (HK$) 7.15 EPS growth (%) 24.0% 5.9% (13.4%) 41.9% 17.1% Date Of Price 27 Oct 16 ROE 13.2% 12.7% 10.2% 13.4% 14.1% 3M - Avg daily vol (mn) 18.73 P/E (x) 15.3 14.4 16.7 11.7 10.0 3M - Avg daily val (HK$ mn) 134.10 P/BV (x) 1.9 1.8 1.7 1.5 1.3 3M - Avg daily val ($ mn) 17.3 EV/EBITDA (x) 9.9 9.5 9.8 7.4 6.2 HSCI 3136.08 Source: Company data, Bloomberg, J.P. Morgan estimates. Price Target End Date 31-Dec-17 See page 9 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
www.jpmorganmarkets.com Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
Key catalysts for the stock price: Upside risks to our view: Downside risks to our view: • Potential raise in this year's railway capex • Stronger-than-expected MU demand driven by • Unexpected changes in government’s investment in target faster-than-expected growth for HSR ridership railway development • New order awarding for rolling stock and better-than-expected railway network effect • Major fluctuations in raw material costs biddings for 2016 and 2017 • Better-than-expected overseas expansion • Potential capacity constraints. • Better-than-expected new business development
Key financial metrics FY15A FY16E FY17E FY18E Valuation and price target basis Revenues (LC) 241,913 220,869 259,046 279,895 Our Dec-17 H-share PT of HK$12.5 is derived based on DCF valuation Revenue growth (%) 9% -9% 17% 8% methodology. Our PT corresponds to a P/E of 20.5x/17.5x and a P/B of EBITDA (LC) 23,506 22,707 28,410 31,812 2.6x/2.3x on FY17/FY18E. EBITDA margin (%) 10% 10% 11% 11% Tax rate (%) 17% 18% 15% 15% Net profit (LC) 11,818 10,235 14,526 17,016 EPS (LC) 0.43 0.38 0.53 0.62 EPS growth (%) 9% -13% 42% 17% Historical P/E valuation chart
DPS (LC) 0.15 0.11 0.16 0.19 40.0 BVPS (LC) 3.55 3.78 4.20 4.66 35.0 Operating cash flow (LC mn) 14,982 19,861 24,076 28,438 30.0 Free cash flow (LC mn) 6,866 12,642 17,544 21,465 25.0 21.6x Interest cover (X) 26.3 21.3 42.5 213.2 20.0 16.9x Net margin (%) 4.9% 4.6% 5.6% 6.1% 15.0 Sales/assets (X) 0.79 0.72 0.83 0.83 10.0 Debt/equity (%) 23% 19% 6% 5% 12.2x 5.0 Net debt/equity (%) -11% -13% -22% -30% 0.0 ROE (%) 12.7% 10.2% 13.4% 14.1% Key model assumptions FY15A FY16E FY17E FY18E Revenue growth (%) 9.0% -8.7% 17.3% 8.0% Gross profit margin (%) 20.2% 20.0% 20.9% 21.2% LT historical P/E Avg P/E LT historical P/E -1 STDEV LT historical P/E +1 STDEV 1yr fwd P/E (x)
Source: Company and J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates.
Sensitivity analysis EBITDA EPS JPMe vs. consensus, change in estimates Sensitivity to FY16E FY17E FY16E FY17E EPS FY16E FY17E 1ppt chg in revenue growth 1% 1% 2% 2% JPMe old 0.50 0.59 1ppt chg in GPM 12% 11% 18% 15% JPMe new 0.38 0.53 % chg -23% -8% Consensus 0.45 0.49 Source: J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan estimates. Comparative metrics CMP Mkt Cap P/E EV/EBITDA P/BV YTD LC $Mn FY16E FY17E FY16E FY17E FY16E FY17E Stock perf. CRRC-H 7.11 35,849 14.4 16.6 12.1 12.5 1.8 1.6 -25.8 Zhuzhou CSR 37.65 5,708 13.2 11.0 9.7 8.4 2.4 2.1 -16.4 Hollysys Automation 19.9 1,189 9.2 9.1 8.8 8.8 1.5 1.3 -10.4 Bombardier 1.3845 3,166 -8.2 -30.1 16.6 12.4 -0.6 -0.7 44.9 Kawasaki Heavy Industry 310 4,916 15.6 12.2 8.4 7.5 1.1 1.1 -31.4 Alstom 24.26 5,816 22.3 15.8 10.9 9.5 1.5 1.4 -13.9 Source: Bloomberg, J.P. Morgan estimates. Prices are as of 10/29/2016
2 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
Key takeaways from analyst briefing call
Backlog for locomotives and MUs light given delayed procurement this year Backlog on hand, totaling Rmb203.8B, includes RTVs (namely subway trains, Rmb106.9B), MUs (Rmb48.5B), locomotives (Rmb20.5B) and new businesses (Rmb15.6B). RTVs formed half of the backlog in light of CRC's exceptionally light procurement YTD. For locomotives, the 195 units of locomotives procured by CRC earlier this year have all been delivered by end-3Q, and hence the orders on hand primarily consist of South African orders. For MUs, backlog of 190+ trainsets consist of 60+ trainsets held by BST.
13th FYP MU demand to remain robust with total demand guidance raised Guidance for normalized MU demand during 13th FYP was raised to 400 trainsets (from the prior 300 trainsets). Mgmt explained that the prior guidance, given at 1H briefing, represents CRC’s expected normalized demand of 300 trainsets per year during the 13th FYP but did not consider additional demand from inter-city railways (which would not go through centralized procurement/bidding). The latest guidance up to 2020 is a key positive, in our view, in light of the exceptionally low procurement in this year. Furthermore, mgmt expects MU density for the existing HSR lines to rise, noting CRC plans to add overnight train services on major lines.
Over the longer-term, mgmt sees robust MU demand up to 2030 arising from: (1) New HSR lines to be completed (expecting the HSR operating mileage to rise to 45,000km, from the current 20,000km); (2) Heavy maintenance services (for level 5 in particular for which maintenance will be carried out solely by CRRC); (3) Existing lines to increase the density ratio driven by the current high and rising load factors.
Commercial production of China standard MUs could begin in FY17 Mgmt noted 2 China standard MU models (out of the total 5) with designed speed of 350km/hr have completed the required trial runs, and hence can be put into commercial production soon. On the other hand, standard MUs with designed speed of 250km/hr are currently still in the design stage and will likely only be finalized in 1H2018. Thus, CRRC will likely see R&D expenses remain elevated in 2017. Looking further ahead, mgmt expects to eliminate duplicate R&D spending post- merger. On the margin front, the China standard MU will have a high localization ratio, and will have a comparable GPM to existing MU models, according to CRRC.
Rising maintenance demand emerging as new potential growth driver Mgmt sees rising maintenance demand (such as MU aftersales services) as a new growth driver for the company. Maintenance service revenue YTD accounted for c10% of total revenue, and up c17% Y/Y. Mgmt expects such aftersales revenue to further rise from 2017, as an estimated c200 trainsets of MUs will enter into Level 5 maintenance cycle.
3 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
Furthermore, heavy maintenance works are not at risk of CRC internalization, and hence such demand will go to CRRC only. For MUs, there are 5 levels of maintenance, Level 5 maintenance (for MUs that have operated for c5MM km, or 10~12 years) will be exclusively carried out by CRRC, while Level 3 and Level 4 maintenance will be jointly carried out by CRRC and CRC (CRRC will capture >70% of such revenue).
Table 1: CRRC 9M16 Financial Review Rmb MMs (PRC GAAP) 9M16 9M15 Y/Y chg% 3Q16 3Q15 Y/Y chg% FY16 % FY16 % JPMe Achieved JPMe Achieved (new) (old) Revenue 147,060 148,555 -1% 52,855 55,319 -4% 220,869 67% 257,487 57% Cost of sales (113,937) (115,681) -2% (41,487) (42,792) -3% (176,655) (205,521) Gross profit 33,122 32,874 11,367 12,526 44,214 75% 51,966 64% GPM% 22.5% 22.1% 0.4ppts 21.5% 22.6% -1.1ppts 20.0% 2.5ppts 20.2% 2.3ppts
Operating expenses (22,079) (21,379) 3% (7,236) (7,550) -4% (30,171) 73% (34,090) 65% Business taxes (949) (765) (293) (265) (1,196) (1,394) Selling expenses (4,915) (5,320) (1,737) (1,948) (6,663) (7,768) Admin expenses (15,288) (14,633) (5,358) (5,208) (21,097) (23,307) Impairment loss of assets (927) (661) 151 (129) (1,215) (1,621)
Other gains/losses (net) 1,158 813 42% 356 260 37% 1,858 62% 1,516 76% Other investment income 283 286 157 (6) 450 100 283% Non-operating income 996 692 257 285 2,306 2,463 40% Non-operating expenses (121) (165) (59) (19) (899) (1,048)
EBIT 12,201 12,307 -1% 4,487 5,237 -14% 15,901 77% 19,391 63% EBIT margin% 8.3% 8.3% 8.5% 9.5% 7.2% 7.5% Net finance expenses (914) (755) (424) (480) (1,067) (761) 120% Share of profit of associates & JCEs 362 290 25% 28 81 -65% 482 446
Earnings before taxes 11,648 11,841 -2% 4,091 4,837 -15% 15,316 76% 19,077 61% Income tax expenses (2,271) (2,230) (788) (901) (2,680) (3,148)
Net profit 9,377 9,612 -2% 3,303 3,937 -16% 12,635 74% 15,929 59% Minority interest (1,857) (1,651) (578) (675) (2,401) (2,576) Net profit attributable to shareholders 7,520 7,961 -6% 2,725 3,262 -16% 10,235 73% 13,353 56% Net margin 5.1% 5.4% 5.2% 5.9% 4.6% 5.2%
EPS (Rmb/share) 0.29 0.29 0.11 0.12 0.38 0.49 59% Op-CF 3,354 (10,177) -133% 11,473 603 1802% 19,861 17% 21,752 15% Source: J.P. Morgan estimates, Company data.
Earnings estimates revisions Although we anticipate CRC procurement to pick up in the coming months and this year's pent-up new orders to be released before year-end; given we are now already well into Q4, we expect most of these new orders to be delivered in FY17. Hence, we are lowering our locomotive revenue growth assumption for FY16 to -65%Y/Y but raising next year's growth rate assumption to +125% Y/Y off a low base (vs prior - 15%/+0% for FY16/17E). Additionally, our MU growth assumption is also lowered for this year given the current backlog to +3% Y/Y but we raise next year’s growth to +15% (vs prior +12%/+7% for FY16/17E).
4 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
Table 2: Model update revision 2016E 2016E Chg % 2017E 2017E Chg % 2018E 2018E Chg % (New) (Old) (New) (Old) (New) (Old) Revenue 220,869 257,487 -14.2% 259,046 277,370 -6.6% 279,895 297,421 -5.9% Gross profit 44,214 51,966 -14.9% 54,210 56,273 -3.7% 59,303 60,685 -2.3% EBIT 15,901 19,391 -18.0% 21,221 21,941 -3.3% 24,276 24,356 -0.3% Net profit to shareholders 10,235 13,353 -23.4% 14,526 15,718 -7.6% 17,016 17,809 -4.5%
GPM 20% 20% -0.2 ppts 21% 20% 0.6 ppts 21% 20% 0.8 ppts OPM 7% 8% -0.3 ppts 8% 8% 0.3 ppts 9% 8% 0.5 ppts Net margin 5% 5% -0.6 ppts 6% 6% -0.1 ppts 6% 6% 0.1 ppts Source: J.P. Morgan estimate
Investment Thesis, Valuation and Risks
CRRC Corp - H (Overweight; Price Target: HK$12.50) Investment Thesis We are OW on CRRC-H. Fundamentally, we remain constructive on China’s railway capex near- to medium-term outlook, as well as the late-cycle equipment sector driven by:
Within China, we see rising HSR ridership and continued investment in rails to support demand for rolling stock. Near term, we expect MU demand to remain robust in the coming two to three years, supported by the pressing need to lift the MU density ratio for existing HSR lines.
Over the medium term, demand for MU trains and equipment should arrive from 2017 as part of the current spending cycle underpinned by the new project starts during 2014-15.
On a slightly longer horizon, we expect inter-city rail travel to emerge as a significant demand driver driven by China’s new strategic initiatives which aim to deepen regional integration, including the ‘Beijing-Tianjin-Hebei integration plan’, and ‘YRD integration plan’.
Outside China, we see growth opportunities for CRRC in light of its cost competitiveness as well as benefits from China’s One Belt One Road plan. Additionally, we see upside to our forecasts arising from post-merger cost synergies, if any (expectations on this front are low).
Valuation Our Dec-17 PT of HK$12.5 is based on our DCF valuation using the following assumptions.
WACC = 11.0%, driven by: Cost of equity = 12.8% (Rf: 5.0%, Equity risk premium: 6.0%, Company beta: 1.3x);
5 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
Cost of debt = 3.8% (pre-tax cost of debt: 5.0%, tax rate: 25%); Target gearing = 20%, terminal growth rate = 1%
Our PT corresponds to a P/E of 29.0/20.5x and a P/B of 2.9x/2.6x on FY16E/FY17E.
Risks to Rating and Price Target Key risks to our price target/thesis include unexpected changes in the government’s investment in railway development, major fluctuations in raw material costs, and potential capacity constraints.
6 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
CRRC Corp - H: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Revenues 221,977 241,913 220,869 259,046 279,895 EBIT 15,780 17,290 15,901 21,221 24,276 % change Y/Y 12.9% 9.0% (8.7%) 17.3% 8.0% Depr. & amortization 5,260 6,217 6,806 7,189 7,537 Gross Profit 44,913 48,891 44,214 54,210 59,303 Change in working capital 7,098 (7,168) 718 (1,654) (210) EBITDA 21,041 23,506 22,707 28,410 31,812 Other adjustment 1,502 2,233 1,517 3,892 4,534 % change Y/Y 29.7% 11.7% (3.4%) 25.1% 12.0% Taxes (2,137) (2,951) (3,564) (2,680) (3,165) EBITDA margin 9.5% 9.7% 10.3% 11.0% 11.4% Cash flow from operations 28,437 14,982 19,861 24,076 28,438 EBIT 15,780 17,290 15,901 21,221 24,276 Capex (9,863) (9,077) (8,100) (7,100) (7,100) % change Y/Y 31.5% 9.6% (8.0%) 33.5% 14.4% Disposal/(purchase) 342 222 0 0 0 EBIT Margin 7.1% 7.1% 7.2% 8.2% 8.7% Other adjustments (8,673) 3,910 396 392 460 Net Interest (2,218) (894) (1,067) (668) (149) Cash flow from investing (19,785) (5,392) (7,704) (6,708) (6,640) Earnings before tax 14,484 17,048 15,316 21,098 24,714 Free cash flow 20,807 6,866 12,642 17,544 21,465 % change Y/Y 30.9% 17.7% (10.2%) 37.8% 17.1% Equity raised/(repaid) 0 0 0 0 0 Tax (2,137) (2,951) (2,680) (3,165) (3,707) Debt raised/(repaid) 5,148 (11,283) (6,038) (14,780) (1,587) as % of EBT 14.8% 17.3% 17.5% 15.0% 15.0% Other adjustments 7,890 418 (1,464) (1,059) (609) Net income 10,815 11,818 10,235 14,526 17,016 Dividends paid (5,765) (5,822) (4,093) (3,070) (4,358) % change Y/Y 30.4% 9.3% (13.4%) 41.9% 17.1% Cash flow from financing 7,272 (16,687) (11,595) (18,909) (6,554) Shares outstanding 27,289 27,289 27,289 27,289 27,289 Net changes in cash 15,842 (7,090) 562 (1,542) 15,244 EPS 0.41 0.43 0.38 0.53 0.62 Beginning cash 21,192 37,034 29,944 30,506 28,965 % change Y/Y 24.0% 5.9% (13.4%) 41.9% 17.1% Ending cash 37,034 29,944 30,506 28,965 44,209 DPS 0.12 0.15 0.11 0.16 0.19 Balance sheet Ratio Analysis Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Cash and cash equivalents 48,896 39,369 39,931 38,389 53,633 Gross margin 20.2% 20.2% 20.0% 20.9% 21.2% Accounts receivable 67,304 82,681 75,489 87,117 92,595 EBITDA margin 9.5% 9.7% 10.3% 11.0% 11.4% Inventories 59,666 59,786 54,717 64,007 69,535 Operating margin 7.1% 7.1% 7.2% 8.2% 8.7% Others 24,360 23,342 22,293 24,197 25,237 Net profit margin 4.9% 4.9% 4.6% 5.6% 6.1% Current assets 200,227 205,178 192,429 213,710 240,999 Other long-term assets 18,407 20,550 20,574 20,590 20,600 EBITDA / Interest Paid (x) 8.0 16.1 15.5 26.8 52.2 Net fixed assets 58,693 62,074 63,282 63,121 62,621 Net debt to total capital (30.1%) (12.6%) (15.6%) (27.7%) (43.5%) Total Assets 298,814 311,694 300,720 322,457 349,898 Net debt to equity (23.1%) (11.2%) (13.5%) (21.7%) (30.3%) a Sales/assets 0.8 0.8 0.7 0.8 0.8 Liabilities Assets/equity 3.3 3.3 3.1 2.9 2.8 Short-term loans 13,034 12,374 14,153 576 2,405 ROE 13.2% 12.7% 10.2% 13.4% 14.1% Trade Payables 128,845 135,662 124,159 143,966 155,040 ROA 4.0% 3.9% 3.3% 4.7% 5.1% Others 31,034 21,055 16,281 18,127 19,431 Total current liabilities 172,913 169,091 154,593 162,670 176,876 Accounts receivable turnover 3.2 3.2 2.8 3.2 3.1 Long-term debt 12,216 14,316 9,298 8,095 4,680 Accounts payable turnover 1.6 1.5 1.4 1.5 1.5 Other liabilities 11,508 14,712 14,712 14,712 14,712 Inventory turnover 3.7 3.2 3.1 3.5 3.3 Total Liabilities 196,636 198,119 178,604 185,477 196,268 Asset Turnover 0.8 0.8 0.7 0.8 0.8 Minority interests 12,882 16,674 19,075 22,482 26,474 Net WC to sales ratio 0.1 0.1 0.2 0.2 0.2 Shareholders' equity 89,295 96,900 103,042 114,497 127,155 BVPS 3.27 3.55 3.78 4.20 4.66 Source: Company reports and J.P. Morgan estimates.
7 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
JPM Q-Profile CRRC Corporation Limited Class H (CHINA / Industrials) As Of: 29-Oct-2016 [email protected] Local Share Price Current: 7.11 12 Mth Forward EPS Current: 0.49 16.00 0.70
14.00 0.60 12.00 0.50 10.00 0.40 8.00 0.30 6.00
4.00 0.20
2.00 0.10 0.00 0.00 Jun/02 Jun/05 Jun/08 Jun/11 Jun/14 Mar/03 Mar/06 Mar/09 Mar/12 Mar/15 Sep/01 Dec/03 Sep/04 Dec/06 Sep/07 Dec/09 Sep/10 Dec/12 Sep/13 Dec/15 Sep/16 Jan/03 Jan/05 Jan/07 Jan/09 Jan/11 Jan/13 Jan/15 Sep/01 Sep/03 Sep/05 Sep/07 Sep/09 Sep/11 Sep/13 Sep/15 May/02 May/04 May/06 May/08 May/10 May/12 May/14 May/16
PE (1Yr Forward) Current: 12.6x P/E Relative to China Index Current: 1.07 30.0x 3.00
25.0x 2.50
20.0x 2.00
15.0x 1.50
10.0x 1.00
5.0x 0.50
0.0x 0.00 Jan/03 Jan/05 Jan/07 Jan/09 Jan/11 Jan/13 Jan/15 Sep/01 Sep/03 Sep/05 Sep/07 Sep/09 Sep/11 Sep/13 Sep/15 May/02 May/04 May/06 May/08 May/10 May/12 May/14 May/16 Jan/03 Jan/05 Jan/07 Jan/09 Jan/11 Jan/13 Jan/15 Sep/01 Sep/03 Sep/05 Sep/07 Sep/09 Sep/11 Sep/13 Sep/15 May/02 May/04 May/06 May/08 May/10 May/12 May/14 May/16
Earnings Yield (& Local Bond Yield) Current: 7.92% Dividend Yield (Trailing) Current: 4.98 6.0 18% 12Mth fwd EY China BY Proxy 16% 5.0 14% 12% 4.0 10% 3.0 8% 6% 2.0 4% 1.0 2%
0% 0.0 Jan/03 Jan/05 Jan/07 Jan/09 Jan/11 Jan/13 Jan/15 Sep/01 Sep/03 Sep/05 Sep/07 Sep/09 Sep/11 Sep/13 Sep/15 May/02 May/04 May/06 May/08 May/10 May/12 May/14 May/16 Jan/03 Jan/05 Jan/07 Jan/09 Jan/11 Jan/13 Jan/15 Sep/01 Sep/03 Sep/05 Sep/07 Sep/09 Sep/11 Sep/13 Sep/15 May/02 May/04 May/06 May/08 May/10 May/12 May/14 May/16
ROE (Trailing) Current: 12.44 Price/Book (Value) Current: 1.7x 25.00 7.0x P/B Trailing P/B Forward
20.00 6.0x
5.0x 15.00 4.0x
10.00 3.0x
2.0x 5.00 1.0x 0.00 0.0x Jan/03 Jan/05 Jan/07 Jan/09 Jan/11 Jan/13 Jan/15 Sep/01 Sep/03 Sep/05 Sep/07 Sep/09 Sep/11 Sep/13 Sep/15 May/02 May/04 May/06 May/08 May/10 May/12 May/14 May/16 Jan/03 Jan/05 Jan/07 Jan/09 Jan/11 Jan/13 Jan/15 Sep/01 Sep/03 Sep/05 Sep/07 Sep/09 Sep/11 Sep/13 Sep/15 May/02 May/04 May/06 May/08 May/10 May/12 May/14 May/16 Summary CRRC Corporation Limited Class H 25161.31 As Of: 29-Oct-16 CHINA 15.57732 TICKER 1766 HK Local Price: 7.11 Industrials Machinery EPS: 0.49 Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg 12mth Forward PE 12.63x P/BV (Trailing) 1.74x 1.31 6.65 2.31 2.72 5.01 0.42 -25% 283% 33% 56% Dividend Yield (Trailing) 4.98 0.00 5.07 1.48 1.82 4.79 -1.16 -100% 2% -70% -64% ROE (Trailing) 12.44 10.06 20.49 14.50 14.70 20.37 9.04 -19% 65% 17% 18%
Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, JPMorgan Quantitative & Derivative Strategy
8 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. Important Disclosures
Market Maker/ Liquidity Provider (Hong Kong): J.P. Morgan Securities (Asia Pacific) Limited and/or J.P. Morgan Broking (Hong Kong) Limited and/or an affiliate is a market maker and/or liquidity provider in the securities of CRRC Corp - H and/or warrants or options thereon, which are listed or traded on The Stock Exchange of Hong Kong Limited. Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for CRRC Corp - H within the past 12 months. Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of CRRC Corp - H. Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: CRRC Corp - H. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as investment banking clients: CRRC Corp - H. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking services from CRRC Corp - H. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from CRRC Corp - H. Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of CRRC Corp - H. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477- 0406 or e-mail [email protected].
9 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
CRRC Corp - H (1766.HK, 1766 HK) Price Chart
36 Date Rating Share Price Price Target (HK$) (HK$) 09-Oct-10 OW 6.81 9.40 OW HK$12OW HK$9OW HK$8.8 OW HK$9.3 27 18-Jan-11 OW 10.88 13.30 30-Mar-11 OW 8.12 12.00 OWOW HK$9.4 HK$13.3OW HK$8.5OW HK$9.3OW HK$8OW OWHK$8.5 HK$8.6 OW HK$14 OW HK$13 14-Oct-11 OW 3.44 8.50 Price(HK$) 17-Jan-12 OW 4.62 9.00 18 23-Aug-12 OW 5.69 9.30 26-Oct-12 OW 5.52 8.80 28-May-13 OW 5.92 8.00 9 03-Jan-14 OW 6.31 8.50 27-Apr-14 OW 6.00 8.60 02-Aug-14 OW 7.00 9.30 0 05-Jul-15 OW 10.90 14.00 Aug Feb Aug Feb Aug Feb 08 10 11 13 14 16 05-Aug-16 OW 7.21 13.00
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Oct 09, 2010.
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. Coverage Universe: Li, Karen: BTS Group Holdings (BTS.BK), Beijing Capital International Airport (0694.HK), CIMC ENRIC HOLDINGS LTD (3899.HK), CRRC Corp - A (601766.SS), CRRC Corp - H (1766.HK), Changsha Zoomlion Heavy Industry - A (000157.SZ), Changsha Zoomlion Heavy Industry - H (1157.HK), China Communications Construction - A (601800.SS), China Communications Construction - H (1800.HK), China Cosco Holdings - A (601919.SS), China Cosco Holdings - H (1919.HK), China Merchants Port Holdings Co Ltd (0144.HK), China Railway Construction - A (601186.SS), China Railway Construction - H (1186.HK), China Railway Group Limited - A (601390.SS), China Railway Group Limited - H (0390.HK), Dongfang Electric Corporation Limited - A (600875.SS), Dongfang Electric Corporation Limited - H (1072.HK), Jiangsu Expressway - A (600377.SS), Jiangsu Expressway - H (0177.HK), Lonking Holdings Ltd (3339.HK), Orient Overseas Int'l Ltd (0316.HK), Pacific Basin Shipping (2343.HK), ST Engineering (STEG.SI), Sany Heavy Industry - A (600031.SS), Shanghai International Airport - A (600009.SS), Sinopec Engineering Group (2386.HK), Weichai Power - A (000338.SZ), Weichai Power - H (2338.HK), Zhejiang Expressway (0576.HK), Zhuzhou CRRC Times Electric Co Ltd (3898.HK)
10 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
J.P. Morgan Equity Research Ratings Distribution, as of October 03, 2016 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 42% 46% 12% IB clients* 51% 48% 34% JPMS Equity Research Coverage 42% 50% 8% IB clients* 68% 61% 43% *Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
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11 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
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12 Karen Li, CFA Asia Pacific Equity Research (852) 2800-8589 30 October 2016 [email protected]
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