Yum Cha 飲茶. December 12, 2014 TALKING POINTS CHART OF THE DAY MONETARY EASING, BUT PRUDENT POLICY... INDICES Closing DoD%

Transcription

1 Yum Cha 飲茶 CHART OF THE DAY MONETARY EASING, BUT PRUDENT POLICY... December 12, 214 INDICES Closing DoD% Hang Seng Index 23,312.5 (.9) HSCEI 11,255.4 (1.) Shanghai COMP 2,925.7 (.5) Shenzhen COMP 1, Gold 1,226.6 (.1) BDIY 887. (2.6) Crude Oil, WTI(US$/BBL) 59.1 (1.4) Crude Oil, BRENT(US$/BBL) 63.7 (.9) HIBOR, 3M.4 SHIBOR, 3M RMB/USD DATA RELEASES DUE THIS WEEK Dec 9/15 New Yuan Loans Dec 9/15 Aggregate Financing RMB Dec 9/15 Money Supply M YoY Dec 9/15 Money Supply M1 YoY Dec 9/15 Money Supply M2 YoY Dec 12 Fixed Assets Ex Rural YTD YoY Dec 12 Retail Sales YTD YoY Dec 12 Retail Sales YoY Dec 12 Industrial Production YTD YoY Dec 12 Industrial Production YoY BANKS ENCOURAGED TO STEP UP LENDING IN FINAL WEEKS OF 214 TARGETING RECORD RMB1trn Shortterm rates (overnight) have eased this week, and yields on 5Y and 1Y sovereign bonds have also eased as the evidence of a continuing slowdown in the economy and weak inflation focused attention on monetary policy. The People s Bank of China (PBoC) is, as usual, very difficult to read, but the absence of repo issues in the interbank market for some weeks, the cut in benchmark interest rates on 21st November, and widespread belief that China Development Bank (CDB) has been used as the channel for a RMB4bn liquidity injection all suggest a deliberate easing policy. The CDB move, unconfirmed, seems to be timed to compensate for the RMB5bn in threemonth facilities provided to major banks in September, and which falls due this month. A further RMB269.5bn, issued in October falls due next month. Another unconfirmed report suggests China s banks have been told to step up lending in November and December, with the aim of reaching a target of RMB1trn in new bank lending for the year. Total RMB bank loans had reached RMB8.23trn by October, an average of RMB82bn a month, so the target of RMB885bn a month is achievable, but at risk of extending loandeposit ratios. The PBoC and the China Banking Regulatory Commission (CBRC) have previously encouraged mortgage lending, and this is still the emphasis, as the overriding strategy of government is to deleverage the industrial economy, so there is a contradictions in approach. In presentations to the Central Economic Work Conference this week the PBoC said monetary policy should have elasticity by 215, and that the central bank would embrace the new normal economic outlook, taken to be GDP growth of 7% Dec 13 Foereign Direct Investment YoY TALKING POINTS Source: Bloomberg CHINA CITY RAILWAY TRANSPORTATION TECHNOLOGY (CCRT) [1522.HK; HK$2.82 Not Rated] CCRT is a railway technology and management business. An associate of Beijing Infrastructure, its largest shareholder, which is controlled by the Beijing Stateowned Assets Supervision and Administration Commission (SASAC), CCRT is well placed to benefit from increased private participation in infrastructure. Asset injections in the urban railway transport (UT) segment from Beijing Infrastructure, which controls 9% of the capital s UT network by rail length, presents opportunities for transport operations, and also for property development, as the UT operating rights include development of land above stations and surrounding areas. Based on market consensus, CCRT is trading at PERs of 49.5x FY14 and 33.6x FY15 PER, which doesn t look cheap. However, CCRT is one of the few HKlisted pure UT plays with strong support from Beijing Infrastructure Investment.

2 COMPANY NEWS CHINA CITY RAILWAY TRANSPORTATION TECHNOLOGY [1522.HK; HK$2.82 Not Rated] A PURE URBAN TRANSIT PLAY Market Cap: US$67m; Free Float: 49.2%; 3month Average Daily Turnover: US$2.9m Analyst: Mark Po [CHINA CITY RAILWAY TRANSPORTATION] (HK$) The Company. China City Railway Transportation Technology (CCRT) 4 has several business segments: a) design and execution of application solutions for managing railway operations; b) maintenance of application 3 solutions; c) sales of application solutions software; and d) sales of application solutionrelated hardware and spare parts. CCRT s products include automated fare collection clearing center (ACC), subway fares collection and settlement traffic control center (TCC) monitors, coordinates, and operates multisubway lines, passenger control center (PCC) and Civil Communication Transmission System (CCTS) provides 2G4G coverage for passengers. Urban railway transit is a growing segment. Urban railway transit (UT) is believed to be one of the most environmentally friendly transportation systems, producing reduced CO2 emissions. The total length of UT increased from 912km in 28 to 2,746km in 213. According to the Beijing government development plan for UT, the total length will be increased from 464km in 213 to about 1,63km by 22. The total investment for 6km UT construction will be at least RMB372bn, based on nationwide average construction cost of RMB62m/km. The transport systems accounted for about 1% of total investment cost, which translates into an addressable market of RMB37bn. Assuming CCRT maintains its market share of 3%, potential order inflow will be RMB3.2bn. The potential order inflow will be 12x CCRT s total 213 turnover of HK$266.9m. The growth potential from CCRT s existing UT development plans is substantial. Given its strong background, CCRT is one of the major beneficiaries of continuous investment in UT in Beijing. CCRT will expand its product portfolio to create longterm growth opportunities. Asset injections. CCRT s largest shareholder is Beijing Infrastructure Investment, which is wholly owned by the Beijing Stateowned Assets Supervision and Administration Commission (SASAC). Beijing Infrastructure Investment has a 91% market share in Beijing UT in terms of length ownership. Beijing Infrastructure Investment is also responsible for the development of the land along railway lines, properties above the subway stations, underground space and related investment areas in railway transport. Since listing in 212, CCRT made two acquisitions from Beijing Infrastructure Investment, including: a) 46% stake in BII ERG in Jun 213; and b) metro civil communication assets covering 82 underground stations of seven subway lines and three stations of the Beijing Airport Express Line in Sep 214. Beijing Infrastructure Investment s stake in CCRT increased by 9.95% in 212 to 37.9% after two acquisitions. CCRT is likely to acquire another 86 stations metro civil communications business from Beijing Infrastructure Investment in 1H 216. After completion of the acquisition of the metro s civil communications business, CCRT can negotiate with telecom operators regarding investment in 4G networks for underground communications, which offers upside potential to CCRT. We believe CCRT will acquire other assets from Beijing Infrastructure Investment, which owns assets of 14 UT lines in Beijing including UT operating rights, metro civil communication business for lines under 2 1 Dec13 Feb14 Apr14 Jun14 Aug14 Oct14 Turnover (RHS) Price (LHS) Key Financials (in HK$ m) Source: Bloomberg, Company Data. December 12, 214 (HK$ million) E 215E Revenue Gross Profit Gross Margin % Net Profit Net Margin % EPS (Basic) ROE (%) Dividend Yield (%) PER (x) PBR (x) construction and planning, advertisement space, commercial building rental and stores operation of each station. Given past experience, we expect CCRT to acquire assets from its parent at attractive valuations. Line 16 of Beijing UT is a pilot program selected by the Ministry of Finance for promoting the publicprivate partnership (PPP) model in China. We believe the Beijing Government will open the UT segment for introduction of private capital, which should ease funding concerns. Based on market consensus, CCRT is trading at PERs of 49.5x FY14 and 33.6x FY15 PER, which doesn t look cheap. However, CCRT is one of the few HKlisted pure UT plays with strong support from Beijing Infrastructure Investment. The UT segment is a fastgrowth investment area in China and CCRT deserves a premium given its unique exposure to UT. Compared with construction companies CCRT also adopts an asset light model and potential asset injections by Beijing Infrastructure Investment will attract market attention. Any share price weakness provide revisit opportunity. Catalysts. Newsflow on new project acquisitions, land sales and major M&A are share price catalysts

3 Figure 1: Planned Length of Urban Transit in China km 8,. 7,. Figure 2: Urban transit density among global major cities in 213 km/km ,. 5,. 4,. CAGR: 19% ,. 2,. 1, F 22F Tokyo New York London Shanghai Shenzhen Guangzhou Beijing Tianjin Chongqing Source: NDRC, Bloomberg, CGIH Source: CCIC, Company Data Figure 3: Beijing Urban Transit Development Plan Figure 4: CCRT s Turnover Breakdown 214 Juneend 12M km 1,2. 1,. Planned length of urban transit in Beijing (km) No. of operating line F 215F 22F Figure 5: Shareholding Structure Beijing Infrastrucutre Investment 1.% Public BII (HK) More Legend 42.2% 37.9% 2.71% China City Railway Transportation Technology [1522.HK] 1.% Beijing City Railway 1% 1% 1% 1% BII ERG ERG HK ERG BJ BJ BII Technology Line level system business in BJ HK and Bangkok transportation Network level system business in BJ metro civil communication

4 Figure 6: Peer Comparison Ticker Company PE EV/EBITDA P/B ROE ROA Div yield Price Market Cap 214F 215F 216F 214F 215F 216F F F F F Lcy US$m x x x x x x x x % % % % % % 1522 HK China City Railway Transport n.a. n.a. n.a. n.a. 5.6 n.a n.a. 1.2 n.a HK Beijing Urban Construction n.a HK China Railway Group Ltd HK China Railway Construction n.a HK China Communications Construction HK China State Construction HK China Machinery Engineering HK MTR HK Guangshen Railway HK NWS Average CH Beijing Urban Construction n.a. n.a. n.a. 2.4 n.a n.a CH China Railway Group CH China Railway Construction CH China Communications Construction n.a CH Shanghai Tunnel Engineering n.a. n.a. n.a. n.a. 1.5 n.a n.a. n.a. n.a CH Shanghai Shentong Metro n.a. n.a. n.a. n.a. n.a. n.a. 3.7 n.a. 9.6 n.a. 5.7 n.a. n.a. n.a CH Guangshen Railway CH China Railway Tielong Contruction n.a CH Daqin Railway Co n.a. 5. Average JP East Japan Railway n.a. n.a JP Central Japan Railway n.a. n.a JP West Japan Railway n.a. n.a JP Hankyu Hanshin Holdings n.a. n.a. 1. CCRI IN Container Corp Of India n.a MRT SP SMRT Corp n.a. n.a. 2. Average n.a UNP US Union Pacific n.a CNI US Canadian Natl Railway n.a n.a. n.a. 1.4 NSC US Norfolk Southern n.a CSX US CSX n.a CP US Canadian Pacific Railway n.a n.a. n.a..7 Average n.a

5 Disclaimer This research report is not directed at, or intended for distribution to or used by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject China Galaxy International Securities (Hong Kong) Co., Limited ( Galaxy International Securities ) and/or its group companies to any registration or licensing requirement within such jurisdiction. This report (including any information attached) is issued by Galaxy International Securities, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to the institutional clients from the information sources believed to be reliable, but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness. This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company(ies) referred to herein. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. The recipient of this report should understand and comprehend the investment objectives and its related risks, and where necessary consult their own independent financial advisers prior to any investment decision. Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published views or investment decisions of China Galaxy International Financial Holdings Limited and any of its subsidiaries ( China Galaxy International ), directors, officers, agents and employees ( the Relevant Parties ). All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. China Galaxy International and/or the Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer. Disclosure of Interests China Galaxy International may have financial interests in relation to the subjected company(ies) the securities in respect of which are reviewed in this report, and such interests aggregate to an amount may equal to or more than 1 % of the subjected company(ies) market capitalization. One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) mentioned in this report. China Galaxy International and the Relevant Parties may, to the extent permitted by law, from time to time participate or invest in financing transactions with the securities of the company(ies) mentioned in this report, perform services for or solicit business from such company(ies), and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. China Galaxy International may have served as manager or comanager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or investment services in relation to the investment concerned or a related investment or investment banking services to the company(ies) mentioned in this report. Furthermore, China Galaxy International may have received compensation for investment banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking investment banking mandate from the subject company(ies). Analyst Certification The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report. Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 3 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Konglisted companies covered in this report; and (4) have any financial interests in the Hong Konglisted companies covered in this report. Explanation on Equity Ratings BUY SELL HOLD : : share price will increase by >2% within 12 months in absolute terms share price will decrease by >2% within 12 months in absolute terms : no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL Copyright Reserved No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited. China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459 Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: