Industrials / China 9 January 2015 Initiation: rail plays to benefit China Railway Sector from urbanisation, overseas push Positive (initiation) • Railway construction and equipment companies stand to benefit Neutral from ongoing investment in HSR and urban rail transit market Negative • Zhuzhou CSR should be key beneficiary of CSR/CNR merger, increasing its market share substantially without paying the price • Our order of preference: Zhuzhou CSR , CSR, CRG, CRCC, CCCC How do we justify our view? urbanisation rate in China, and [3]) has less exposure to railway believe the urban transit market will construction. Local governments’ be a long-term earnings and share- high debt levels and weak land sales price driver for the sector. With could drag down investments in road China’s government’s aggressive and port projects to which CCCC has Brian Lam plans for SOEs to strengthen their high exposure. (852) 2532 4341 overseas businesses, we believe both
[email protected] railway constructors and equipment ■ Catalysts makers will benefit handsomely by The 13th FYP is expected to be Kelvin Lau increasing their international announced in 3Q15.We estimate total (852) 2848 4467 presence, given their competitive railway FAI for 13th FYP to be greater
[email protected] advantage in providing quality than that for 12th FYP. Better-than- products at a low cost. expected 2014 results and railway ■ Investment case FAI target for 2015E could be a near- ■ Recommendation We initiate coverage of the China term catalyst. Railway Construction and Railway We prefer the railway equipment ■ Risks Equipment Sector with a Positive makers over the railway constructors, rating.