The Sino-US trade war has once again warmed up, and with the mainland’s second-quarter economic growth slowing to the lowest 6.2% in 27 years, the market will continue to release water to infrastructure projects to ensure economic growth, driving funds to flow into infrastructure stocks in recent days
At present, the valuation of the sector is low, so it is possible to buy a blog to chase after.
Hong Kong Commercial Daily reporter Lin Defen
US President Trump suddenly announced last week that he would impose tariffs on Chinese goods of 300 billion US dollars in September, shaking off Hong Kong stocks. The Hang Seng Index fell more than 600 points last Friday and fell below the psychological barrier of 27,000 points. However, among the infrastructure projects, the shares of China Railway Construction (1186) and China Railway Group (390) were up against the market last Friday, up 0.45% and 0.18% respectively, while China Communications Construction (1800) closed down 2.27%.
The National Bureau of Statistics announced earlier that the national fixed assets investment in the first half of the year was 29.91 trillion yuan (RMB, the same below), up 5.8% year-on-year, better than the market expectation of 5.5%, and the growth rate was 0.2 percentage points higher than that from January to May. At the same time, this year, the number of infrastructure projects approved by the National Development and Reform Commission has approached 40, with a total investment of over 950 billion yuan and a corporate debt of 100 billion yuan.
In order to speed up the launch of infrastructure projects, the General Office of the State Council issued the Notice on Doing a Good Job in Local Government Special Bond Issuance and Project Supporting Financing in June, stating that special bonds are allowed to be eligible for major project capital. The role of special bonds strengthens macroeconomic policy coordination and coordination, maintains market liquidity and reasonable abundance, and promotes economic operation in a reasonable range. Although this policy may not be directly related to infrastructure, it is expected to help local governments develop more projects, and the news is good for infrastructure stocks.
China Railway Construction won the bid for new projects
China Railway Construction, one of the largest railway and highway contractors in the Mainland, benefited from the advancement of national infrastructure projects along the “Belt and Road” and the railway projects of the Asian Infrastructure Investment Bank in Southeast Asia. In the past few months, China Railway Construction has continuously won new projects, including the acquisition of the Côte d’Ivoire housing project in July, involving 28 billion yuan, and the successful PPP project for farmers’ resettlement housing in Tianjin, with a total investment of 4.089 billion yuan. In the first quarter of this year, China Railway Construction’s net profit rose 13.56% year-on-year to 3.886 billion yuan, and the newly signed contract amounted to 297.39 billion yuan, up 6.3% year-on-year.
Goldman Sachs maintains China Railway Construction Buy rating
The market is optimistic about China Railway Construction’s investment prospects. Goldman Sachs reiterated China Railway Construction’s “Buy” investment rating with a target price of HK$16.5. China Railway Construction’s new contract in the second quarter of this year reached 421.3 billion yuan, up 28% year-on-year, ahead of market and company guidelines. Although the base in the second quarter of 2018 was low, China Railway Construction’s growth was still strong under the tight credit environment. The new contract received in the first half of the year was 718 billion yuan, up 18% year-on-year. According to the bank, China Railway Construction’s H-share market price-to-earnings ratio is about 5.5 times in FY 2019, which is close to historical low valuation and attractive. It still regards the company as the preferred Chinese H-share listed contractor.
UBS also reiterated China Railway Construction’s “Buy” investment rating, which is the industry’s first choice with a target price of HK$13.2, which is equivalent to a forecast of 2020 INR of 7.5. However, the market sentiment is general. China Railway Construction’s share price has continued to decline in recent days. Its price-to-earnings ratio is only 5.7 times. The valuation is low. If you want to lower the absorption, you can consider the absorption below 9 HKD.
China Railways issued new shares to buy assets
According to Mainland accounting standards, China Railway’s first quarter operating income was 159.73 billion yuan, up 8.2% year-on-year; net profit was 3.84 billion yuan, up 20.2%; earnings per share was 15 points. In the first half of 2019, the amount of newly signed contracts reached 701.3 billion yuan, a year-on-year increase of 10.5%; the number of newly signed contracts in the second quarter was 388.1 billion yuan, a year-on-year increase of 20.4%.
China Railway Group announced at the end of April this year that it has won 15 major projects in recent days. The winning bid price totaled 29.0 billion yuan, accounting for 3.93% of the company’s operating income in 2018 under China Accounting Standards. In addition, the Group announced earlier that it was approved by the China Securities Regulatory Commission and approved the issue of assets for the purchase of shares. Both of the news were positive for the Group’s investment prospects.
Yamato maintains a win over the market rating
Dahe believes that China Railway’s revenue in the first half of this year can record high single-digit gains and stable orders growth. The future gross profit margin is expected to continue to improve, and the real estate business will also have a strong performance this year, reiterating the “Outperform” rating.
BOCOM International believes that China Railway’s high-margin business revenue growth may slow down in the second half of the year, so China Railway’s earnings forecast for 2019-2021 was lowered. According to the forecast of 2019, China Railway’s current P/E and P/B ratios are 6.3 times and 0.55 times, respectively, lower than the historical average. The bank maintains a BUY rating but lowers its target price from HK$7.99 to HK$7.10, which is equivalent to a forward P/E of 10.3x for 2019. The basic factors of China Railway are stable and desirable, and the stock price is relatively backward. It is worthy of absorption in the current volatile market.