The 18-year results were generally in line with expectations, and the dividend payout situation was good
Railway Construction Equipment announced its 2018 annual results, achieving revenue of 2.41 billion yuan in 2018, an increase of 32.6% over the previous year; achieving net profit of 156 million yuan, an increase of 183.8% over the previous year; and earnings of 0.10 yuan per share, which is basically in line with our expectations (forecast of 0.11 yuan). The company has plenty of cash and announced an annual dividend of 0.05 yuan per share, with a dividend rate of 50%.
The increase in the company's revenue was mainly due to the increase in equipment sales. Among them, machinery sales revenue was 1.60 billion yuan, up 65.0% year on year; parts sales revenue was 210 million yuan, down 18.8% year on year; product overhaul service revenue was 490 million yuan, up 1.5% year on year; revenue from railway line maintenance services was 40 million yuan, up 59.6% year on year; revenue from line vehicle engineering and technical services was 70 million yuan, down 14.0% year on year.
The scale of railway equipment tenders has rebounded, and demand for large-scale road maintenance machinery continues to recover
In 2018, railway investment exceeded the plan at the beginning of the year, and the total investment recovered from 730 billion to 800 billion dollars, an increase of about 10%; we estimate that infrastructure and equipment investment recovered from 6450/85 billion to 6800/120 billion respectively; infrastructure investment rebounded less than 10%, while equipment investment rebounded by more than 40%. Looking ahead to 2019, the General Conference of Railways confirmed that railway investment will maintain a high level of prosperity, and we believe that demand for large-scale road maintenance machinery will continue to recover.
Recently won a number of large orders, and the leading position in the industry is stable
In the annual large-scale road maintenance machinery tender at the end of 2018, the company maintained its leading advantage in major product fields and won many large orders. In November '18, the company won bids for five large-scale road maintenance machinery projects on the Daqin Railway, amounting to RMB 96 million; in December '18, the company won the bid for 52 large-scale road maintenance machinery procurement projects for the railway, amounting to RMB 730 million. We expect the number of successful bids the company has won in 2019 to rise year over year.
Maintain an “increase in holdings” rating
Affected by factors such as product restructuring, the company's gross profit margin for 2018 was 23.9%, slightly lower than expected; we lowered the company's gross margin and profit forecast for the next year slightly, and introduced the 21-year profit forecast.
The company's net profit for 19-21 is estimated to be RMB 2.0/26/320 million, respectively (the original forecast for 19-20 was RMB 244/320 million), and the corresponding EPS is RMB 0.13/0.17/0.21, respectively. Referring to the company's average PE (TTM) value over the past three years, carefully giving 15 times PE in 19 years, the target price was raised to HK$2.30, maintaining the “increase in holdings” rating.
Risk warning: risk of policy change, risk of bidding volume falling short of expectations, risk of product price reduction
