According to local press, China Railway Construction Corporation (CRCC)
resumed the IPO process this week. The Group began investor education for
HK portion of its deal this week before a formal roadshow starts on 25th
Feb. A price range will be set on 22nd Feb. CRCC plans to sell to
investors 37.9% of company shares through the dual listing (A+H). The
proceeds from the IPO is about US$3-4b. The stellar share price
performance of the China Railway Group (CRG) has triggered greater
attention on the railway industry in China and CRCC's IPO.
We did a comparison between CRG and CRCC. There are a lot of similarities
between CRG and CRCC (such as revenue breakdown, industry outlook, company
background and profitability), as they are the two leading construction
companies in China. Infrastructure construction division accounted for
over 90% of CRG's and CRCC's turnover in 2006. Railway construction
accounted for about 40% of both CRG's and CRCC's turnover at the
infrastructure construction division. CRG has a higher exposure to China
property sector as property division accounted for 1.2% of total turnover
and 11.6% of operating profit in 2006. Property division only accounted for
0.4% and 3.1% of CRCC's total turnover and operating profit in 2006. CRG's
overall margin appears to be higher than CRCC as CRG achieved better
operating performance at the property division and equipment manufacturing
division. CRCC achieved higher operating efficiency as CRCC's sales and
net profit per staff were higher.
We consider both CRG and CRCC are high quality railway plays in China. The
industry outlook for both companies is favourable given the government's
plan to expand the railway network aggressively in the coming years. In
view of their proven track records and dominant market position, both
companies are well-positioned to benefit from the rapid growth in the
railway industry. Apart from railway construction, there are other growth
drivers, including a.) expansion into overseas markets, b.) expansion into
other business and c.) improvement in operating efficiency.
Without an indicative price range, it is impossible to do a comparison
between CRG and CRCC based on valuation (such as PER, EV/EBITDA or PEG).
However, we believe that CRCC is likely to price attractively in order to
lure investors given the current market environment.
Differences between China Railway Group (CRC) and China Railway
Construction Corporation (CRCC)
China Railway Group China Railway Construction Corporation
Ticker 390 HK
FY06 Turnover
breakdown (%)
Infrastructure 91.4 95.3
Construction
Survey, Design 2.7 2.2
and Consulting
Services
Equipment 2.7 0.9
manufacturing
Property 1.2 0.4
Others 4.1 1.9
FY06 Operating
profit breakdown
(%)
Infrastructure 60.5 85.8
Construction
Survey, Design 9.5 3.3
and Consulting
Services
Equipment 12.1 0.7
manufacturing
Property 11.6 3.1
Others 4.9 7.1
FY06 Operating
margin (%)
Infrastructure 1.6 1.4
Construction
Survey, Design 8.5 2.4
and Consulting
Services
Equipment 10.9 1.3
manufacturing
Property 22.7 13.2
Others 2.9 5.8
FY06 turnover Railway (43.7%) Railway (42.0%)
Breakdown of Highway (30.0%) Highway (38.9%)
Infrastructure Municipal works (26.3%) Municipal works (19.1%)
Construction
division
Survey & design 1 2
institutes
Equipment Largest manufacturers of Largest large track maintenance
manufacturing turnouts. machinery manufacturer
Sole developer and manufacturer
currently producing high
manganese steel welded frogs
and the only manufacturer
currently producing
acceleration turnouts in China
Property 6.3m 5.4m
development (GFA Beijing, Chengdu, Shenzhen, Guiyang, Changsha,Xuzhou, Baoding,
m2) Guiyang, Guangzhou, Wuhan Hebei, Chongqing, Laixi, Beijing
Location Shijizhuang and Anging Qingdao and Linan.
Other business 3 gold mines (1 in Inner Potential investment in cement
Mongoia and two in Congo), 1 production in Nigeria
cobalt mine in Congo
Ranking in China 1 2
Listed China Raiwlay Erju Nil
subsidiaries
No. of staff 276,504 183,308
Sales per staff 555,392 837,989
(Rmb) 7,400 6,628
Net profit per
staff (Rmb)
Future growth Property development, overseas Cement production, margin improvement
drivers projects, margin improvement, especially at the survey, design and
mining and BT and BOT projects consulting services division and
equipment manufacturing division
(FY08 PER) 36 n.a.
Mkt cap. (US$m) 12,301 4,000.
Major subsidiaries under CRG and CRCC
China Railway Group China Railway Construction
Corporation
China Overseas Engineering Group China Civil Engineering
Construction Corp
China Railway No.1 Engineering Group China Railway 11th Construction
Bureau Corp
China Railway No.2 Engineering Group China Railway 12th Construction
Bureau Corp
China Railway No.3 Engineering Group China Railway 13th Construction
Bureau Corp
China Railway No.4 Engineering Group China Railway 14th Construction
Bureau Corp
China Railway No.5 Engineering Group China Railway 15th Construction
Bureau Corp
China Railway No.6 Engineering Group China Railway 16th Construction
Bureau Corp
China Railway No.7 Engineering Group China Railway 17th Construction
Bureau Corp
China Railway No.8 Engineering Group China Railway 18th Construction
Bureau Corp
China Railway No.9 Engineering Group China Railway 19th Construction
Bureau Corp
China Railway No.10 Engineering Group China Railway 20th Construction
Bureau Corp
China Railway Major Bridge Engineering China Railway 21th Construction
Group Bureau Corp
China Railway Tunnel Group China Railway 22th Construction
Bureau Corp
China Railway Electrification Engineering China Railway 23th Construction
Group Bureau Corp
China railway Construction Group (CRCG) China Railway 24th Construction
Bureau Corp
China Railway Eryuan Engineering Goup China Railway 25th Construction
Bureau Corp
The Third Railway Survey and Design Zhong-Tie Construction Group
Institute Corp
China Railway Engineering Consulting Group China Railway Material Corp
China Railway Major Bridge Reconnaissance
Design Institute
Huatie Engineering Cosulting Co
Martech Marine & China Railway Engineering
China Railway Shanhaiguan Bridge Group
Baoji China Railway Turnout & Bridge
Development
China Railway Baoji Machinery
China Railway heavy Machinery
China Railway Northwest Research Institute
China Railway Southwest Research Institute
China Railway Engineering Machinery
Research & Design Institute
HangRan Management Institute
China Railway Engineering Institute
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