Announcement plans to integrate with Railway Construction heavy Industry
Railway construction equipment announcement, the parent company China Railway Construction Corporation is planning railway construction equipment and its other wholly-owned subsidiary railway construction heavy industry integration, to form a new China Railway Construction Corporation heavy industry group co., Ltd. The integration is still in the planning stage and the specific method has not yet been determined.
The quality of the integration target is good, and the industry is in a leading position.
Founded in 2007, after 10 years of development, Railway Construction heavy Industry has become the largest enterprise of underground engineering equipment and track equipment in China, and is the only enterprise with full-face tunnel boring machine as the leading product among the top 100 enterprises in China's machinery industry. The main business of Railway Construction heavy Industry is divided into four categories: roadheader, special equipment, track equipment and service. the main products include tunnel boring machines, shield machines, municipal pipeline construction machinery, rock drilling rigs, tunnel multi-function vehicles, concrete shotcrete trolleys, railway turnouts, track fasteners and so on. The integration of Railway Construction heavy Industry will change the listed company from a single leader of railway road maintenance machinery to a leader of equipment manufacturing across multiple industries, which is conducive to the diversification of the company's sources of income and reduce the impact of fluctuations in a single railway industry.
Integrate and build the listing platform of railway construction manufacturing business, the profitability will be improved.
Railway Construction equipment and Railway Construction heavy Industry are the two main equipment manufacturing subsidiaries of China Railway Construction Corporation; if the merger of the two is completed, it means that China Railway Construction Corporation has completed the integration of his equipment manufacturing business on the platform of railway construction equipment. In 2016, the net profit of Railway Construction heavy Industry was 960 million yuan, 2.1 times that of railway construction equipment, and its net assets reached 6.9 billion yuan, 1.2 times that of railway construction equipment. If Railway Construction heavy Industry is fully incorporated, the overall ROE of listed companies will be improved.
The integration theory is feasible; if fully merged, the listed companies are expected to become the Shenzhen-Hong Kong Stock Exchange.
The share price of Railway Construction equipment is currently 9 times PE and 0.85 times PB in 2017. As the profitability of railway construction heavy industry is higher than that of railway construction equipment, according to our calculation, the integration of railway construction heavy industry and railway construction equipment is feasible in theory. The total net profit of the two companies in 2016 is HK $1.64 billion, which is conservative in terms of 9 times PE, corresponding to a market capitalization of HK $14.76 billion. At present, the number of outstanding shares of the company accounts for 35%. Assuming that the proportion remains unchanged after the completion of the integration, the corresponding current market capitalization amounts to HK $5.2 billion, which has exceeded the threshold of 5 billion of the Shenzhen-Hong Kong Stock Connect.
Maintain a "buy" rating
As the time and mode of integration between Railway Construction equipment and Railway Construction heavy Industry have not yet been determined, we do not consider the impact of integration on the profit forecast and valuation of listed companies for the time being, and maintain the forecast that the EPS of the company for 17-18 years will be 0.34 EPS 0.42 RMB respectively. The company's recent share price corresponds to 9 times PE,0.85 times PB in 2017, with a dividend yield of about 5%, which is more discounted than its peers and undervalued. 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, the relationship between partners has changed, and the integration plan is lower than expected.
