The delay in bidding affects the settlement of orders, with a small increase in net profit and generous dividends.

In 2016, the company achieved operating income of 3.62 billion yuan, down 9.0% from the same period last year; net profit of 470 million yuan, up 2.4% from the same period last year; and earnings per share of 0.31 yuan. The company's full-year gross profit margin rose 3.3 percentage points year-on-year to 27.3%, and net profit margin rose 2.1 percentage points to 15.3%. The company announced a dividend of 0.16 yuan per share in 2016, higher than expected, with a dividend yield of 5.5%. The company's revenue fell slightly, mainly due to the delay in bidding for large-scale road maintenance machinery of the China Railway Corporation last year, and a number of products have not yet been delivered. Correspondingly, the company's accounts receivable increased by 51.6% at the end of the year compared with the same period last year. With the "13th five-year Plan" railway work on the right track, we expect that the bidding for large-scale railway maintenance machinery in 2017 will return to normal, and we do not rule out the emergence of supplementary bidding for 2016.

The bidding scale of railway equipment will pick up significantly in 2017.

In December 2016, the China Railway Corporation launched the tender for large-scale road maintenance machinery in 2016. the total bidding amount was 1.03 billion, and the company won 830 million, maintaining the absolute leading position in the industry. The amount of tenders for large-scale railway maintenance machinery declined in 2016 compared with the same period last year, a phenomenon that also occurred in other railway equipment products. However, with the completion of the replacement of the General Iron Federation, equipment procurement in 2017 will pick up significantly.

In January 2017, the General Railway Corporation successively launched a large-scale tender for EMU, trucks, locomotives and other products, and we expect that there is also the possibility of supplementary bidding for large-scale road maintenance machinery. Under the background of the undervaluation of the company, the start of bidding will become an effective catalyst for the company's stock price.

The market of large-scale railway maintenance machinery has entered a period of rapid growth.

Under the background of maintaining the stability of the total railway investment during the 13th five-year Plan, the investment structure is changing, and the post-cycle maintenance industry is in a period of rapid growth. According to our estimates, by the end of the 13th five-year Plan, the market capacity of domestic railway large-scale road maintenance machinery will increase by about 70% compared with the end of the 12th five-year Plan, and promote the growth of the overhaul market. As a leading enterprise with a market share of more than 80% of the domestic railway large-scale road maintenance machinery market, railway construction equipment is not only the most direct beneficiary of the rapid growth of the railway maintenance industry, but also the direct beneficiary of the export of "Belt and Road Initiative" maintenance equipment of the railway industry.

Maintain a "buy" rating

We expect the company's revenue from 2017 to 2018 to be 4.03 billion yuan and 5.07 billion yuan respectively, the net profit to be 523 million yuan and 638 million yuan respectively, and the EPS to be 0.34 yuan 0.42 yuan respectively. The company has a dividend yield of 8.4 times PE,0.8 times PB,5.5% in 17 years, which is more discounted and undervalued than its peers. Give the company a target price of HK $4.60, corresponding to 12 times PE in 2017, maintaining a "buy" rating.

Risk hints: the bidding volume is not up to expectations, overseas expansion is not smooth, and the relationship between partners has changed.