Results in the first half of 2017 were lower than expected
Railway Construction equipment announced its results for the first half of 2017: revenue was 931 million yuan, down 44.8 percent from the same period last year; net profit was 26.9 million yuan, down 87.5 percent from the same period last year, and earnings per share was 0.02 yuan. The performance was lower than expected. The company also announced the appointment of Liu Feixiang, Zhao Hui and Tong Pujiang as executive directors.
Income and net profit fell. In the first half of 2017, revenue from machinery sales, spare parts sales, railway line maintenance services, and railway vehicle engineering and technical services decreased by 63%, 48%, 20% and 33%, respectively, due to the postponement of bidding. Revenue from product overhaul services increased by 50%. Gross profit margin increased by 0.9 percentage points. The rates of sales, management and financial expenses increased by 1.5, 8.0 and 3.8 percentage points, respectively. Net profit fell 9.8 percentage points. In 2017, the operating cash flow was 930 million yuan, an increase of 1.493 billion yuan over the previous year, mainly due to the rebate of the general iron project.
Trend of development
Performance is expected to improve month-on-month in the second half of 2017, and machinery demand is expected to recover in 2018. We expect that there will be a new tender of more than 1 billion yuan soon, and the performance is expected to improve month-on-month in the second half of 2017. It is expected that the demand for machinery will increase in 2018 as the new line is put into operation.
Pay attention to management changes. On July 3, the company announced that China Railway Construction Corporation was preparing to integrate railway construction equipment and railway construction heavy industry. Liu Feixiang, Zhao Hui and Tong Pujiang all maintain their positions in Railway Construction heavy Industry.
Profit forecast
We cut our earnings per share forecasts for 2017 and 2018 by 17% and 12% from 0.29 yuan and 0.34 yuan to 0.24 yuan and 0.30 yuan, respectively.
Valuation and suggestion
At present, the company's share price corresponds to 9.7 times 2017 forward earnings and 8.0 times 2018 forward earnings. We maintain our recommended rating but lower our target price by 5.79% to HK $3.09.
Risk.
The tender has been postponed.
