Morningstar | Our First Take on China Railway Group's 1H Result
No-moat China Railway Group's strong 21.6% increase in first-half recurring net profit to CNY 9.6 billion was higher than our expectations. This was driven by higher investment income and effective cost controls, which drove net margin to expand by 0.4% to 2.9% in the first half, while 5.3% revenue growth was largely in line with our expectations. In the first half, CRG’s overall new order growth rose 13% to CNY 634 billion, led by 17.5% growth in municipal projects and 10.4% in railway infrastructure. By the end of June, CRG's uncompleted orders amounted to CNY 2.8 trillion, equivalent to 4 times the company’s revenue in 2017, which should support solid growth in the coming years. We anticipate little change to our fair value estimate of HKD 7.50 per share for now, but we expect to raise our 2018 earnings forecast by 4%-6%. We will revisit our valuation once we update our operating assumptions.China Railway Group is engaged in infrastructure construction, survey, design and consulting services, engineering equipment and component manufacturing and property development; Through its subsidiaries, Co. is also engaged in the provision of engineering consulting services; construction and survey supervision services; manufacture of bridge steel structures, railway specialized equipment and tunnel equipment; construction management; investment and management; financial trust management; and mining. Co. has 5 business segments: infrastructure construction; survey, design and consulting services; engineering equipment and component manufacturing; property development; and other businesses.
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