CRRC (01766 HK)'s revenue for the full year of 2021 decreased 0.8% year-on-year to 225.7 billion yuan (RMB, same below). Shareholders' net profit decreased 9.1% year over year to $10.3 billion. The performance was in line with expectations. The overall gross margin fell 1.7 percentage points to 20.6% year on year, the sales expense ratio fell 0.6 percentage points to 3.2% year on year, the administrative expenses ratio remained flat at 6.0% year on year, the R&D expenses ratio fell 0.1 percentage points to 5.8% year on year, and the net financial expenses ratio fell 0.3 percentage points year on year to 0.2%. In 2021, the amount of new contracts signed by the company decreased 8.7% year on year to 221 billion yuan, and the amount of new contracts signed in its international business decreased 16.9% year on year to 35 billion yuan.

We expect revenue compound annual growth rates of 7.0%, 5.0%, 5.6%, and 1.2% for rail equipment, urban rail and urban infrastructure, new businesses, and modern services in 2021-2024, respectively, and a compound annual growth rate of 5.9% for overall revenue. Additionally, we expect gross margin to improve slightly from 20.5% in 2022 to 21.2% in 2024. Finally, we expect the company to maintain a net cash position in 2022-2024.

Our earnings per share forecasts for 2022/2023/2024 are RMB 0.310, $0.415, and RMB 0.478, respectively.

Although the company's results for the first quarter of 2022 have regressed due to the impact of the pandemic, overall fundamentals are strong. The target price was lowered to HK$4.20, corresponding to the 2022/2023/2024 price-earnings ratio of 11.0/ 8.3/ 7.2 times. Maintain “collection” ratings.