The current situation of the company
Railway construction equipment announced that its parent company, China Railway Construction Corporation, is preparing to integrate railway construction equipment with its wholly-owned subsidiary, Railway Construction heavy Industry.
Comment
Railway Construction heavy Industry is the leader of railway turnouts and roadheader. Railway Construction heavy Industry manufactures railway turnouts, roadheader, fasteners and excavators. According to China Railway Construction Corporation's annual report, the net profit of Railway Construction China in 2016 reached 963 million yuan (2.1 times that of Railway Construction equipment in 2016), and its net assets were 6.9 billion yuan (1.25 times the net assets of Railway Construction equipment in 2016). The integration of railway construction equipment and railway construction heavy industry is expected to strengthen China Railway Construction Corporation's manufacturing business.
Potential integration remains uncertain. An integration plan has just been proposed and a specific plan or timetable has not yet been worked out. We believe that if the integration plan is implemented, China Railway Construction Corporation may take the lead in integrating the R & D, manufacturing and marketing operations of the two companies.
The business of railway maintenance machinery is still very low. Considering that the General Railway Corporation is still the only major customer for China Railway Construction Corporation to equip railway maintenance machinery, and that new orders are limited in the first half of 2017, we believe that the company's performance in the first half of 2017 is still under great pressure. We believe that the Railway Federation is expected to release more tenders for projects in the second half of the year, and may continue to increase tenders in 2018.
Valuation proposal
Maintain earnings per share forecast of 0.36 yuan and 0.41 yuan for 2017 and 2018. Maintain the recommended and target price of HK $4.39 (11 times 2017 earnings).
Risk.
Corporate integration is not as good as expected.
