yum cha 飲茶 · 2015. 4. 28. · 1 coal power net profit. we raised our 2015e/2016e earnings...

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Yum Cha 飲茶 April 28, 2015

RESEARCH NOTES

Source: Bloomberg

INDICES Closing DoD%

Hang Seng Index 28,433.6 1.3

HSCEI 14,741.2 1.7

Shanghai COMP 4,527.4 3.0

Shenzhen COMP 2,271.3 0.7

Gold 1,201.0 (0.1)

BDIY 600.0 -

Crude Oil, WTI(US$/BBL) 56.7 (0.5)

Crude Oil, BRENT(US$/BBL) 64.8 (0.7)

HIBOR, 3-M 0.4 (1.1)

SHIBOR, 3-M 4.2 (2.4)

RMB/USD 6.2 0.4

DATA RELEASES DUE THIS WEEK

Apr 28 Leading Index

Apr 29 Westpac-MNI Consumer Sentiment

May 01 Manufacturing PMI

May 01 Non-manufacturing PMI

May 04 HSBC China Manufacturing PMI

VST HOLDINGS [0856.HK; HK$3.10; BUY] - Despite concerns triggered by

economic slowdown, VST Holdings Limited (VST) management remains positive on

the outlook for the group given: a) contribution from distribution of wearable devices &

game consoles, b) fast growing enterprise system products segment, c) development

of cloud related business. Strong operating performance, joint-promotion of

Microsoft’s cloud based products and the new O2O platform should create medium to

long term growth opportunities. Increasing contribution from the group’s

software/services makes VST an indirect proxy to continuous IT spending in the

region. Maintain BUY and a target price of HK$3.75 (based on 8.5x 2015E PER,

higher than historical average but discount to its peers).

LONGYUAN [0916.HK; HK$9.93; BUY] - Longyuan’s net profit in Q1 2015 came in

at RMB1,029m (+43% YoY). Adjusting for the change in value of trading securities

(Q1 2015: RMB13m gain; Q1 2014 RMB63m loss), core net profit in Q1 was

RMB1,016m (+30% YoY), better than our expectation, thanks to a 46% YoY surge of

coal power net profit. We raised our 2015E/2016E earnings estimates by 9%/12%

after revising our coal power utilization hours, unit fuel cost as well as finance cost.

We raised our DCF-based TP to HK$11.00 from HK$9.70 accordingly. Maintain BUY.

ZCSR [3898.HK; HK$64.35; BUY] - Operating revenue stayed flat at RMB2bn, while

net income up 26% YoY to RMB400m, thanks to the GPM improvement. According to

management, revenue booking in Q1 2015 is in line with expectation and they

reiterate the KPI on 2015 booking. We push our valuation forward from FY15E to

FY15/16E, and raise our target valuation from 23x to 25x FY15/16E PER for stronger

contract flow expected from OBOR development scheme as well as increase in

visibility on merger of CSR & CNR. Our new target price is HK$ 76.31, reiterate BUY.

Short term catalysts will be the first batch of tender opening from CRC for locomotive

and MUs procurement expected in Q2.

CR CEMENT [1313.HK; HK$5.03; HOLD] - During the company’s post-results

telephone conference yesterday, management has seen some recent signs of

gradual demand recovery and average selling price (ASP) stabilization. Meanwhile,

management estimated the full-year effective tax rate to stay at 28%-30% this year

despite a tax reversal in Q1, as losses in some provinces could not offset the profit in

others. Overall, management is relatively conservative about the outlook in Q2 due to

seasonality and market competition but maintains a better outlook in 2H15. We

maintain our HOLD rating with a target price of HK$5.20, based on 1.1x 2015E PBR

(unchanged).

SNIPPETS

SASAC announcement may not quash rumor of SOE merger - Referring to a news report about a potential large scale merger among central SOEs to reduce the

total number of central SOEs to 40, State-owned Assets Supervision and Administra-

tion Commission (SASAC) issued a statement to clarify the media “has not inter-

viewed or verified with SASAC”. Exact wordings are quite interesting, in our view, as

the announcement did not deny anything in the news report. Following a rally of

many big SOEs yesterday, we will not be surprised to see profit-taking today. Howev-

er, we believe the weak tone of SASAC is unlikely to quash speculation on SOE mer-

ger. Analyst: Wong Chi-man, CFA

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VST Holdings Limited [856.HK]

Despite concerns triggered by economic slowdown, VST Holdings Limited (VST)

management remains positive on the outlook for the group given: a) contribution from

distribution of wearable devices & game consoles, b) fast growing enterprise system

products segment, c) development of cloud related business. Strong operating perfor-

mance, joint-promotion of Microsoft’s cloud based products and the new O2O plat-

form should create medium to long term growth opportunities. Increasing contribution

from the group’s software/services makes VST an indirect proxy to continuous IT

spending in the region. Maintain BUY and a target price of HK$3.75 (based on 8.5x

2015E PER, higher than historical average but discount to its peers).

Enterprise business continues to growth. VST management highlights that

major vendors including HP, Dell, Microsoft and IBM are now more reliant on value-added resellers like VST to promote one-stop solutions (including server, networking products, storage and software) to corporate customers and system integrators. Profitability of the selling one-stop solutions is much higher than ex-isting distribution and enterprise business. Major vendors are selective in choos-ing partners and only the leading players like VST can secure supports from

vendors. VST is benefiting from increasing investment in cloud-related products and services. Distribution of cloud-based software and services required a well-established platform for billing and metering, and management believes the entry barrier is relatively high.

Good start in 1Q15. Despite concerns triggered by economic slowdown in Chi-

na, management highlights that operating performance in 1Q15 was satisfactory and in line with management, who is positive on the group’s operating perfor-mance in 2015 as distribution segment will resume growth and a strong growth in enterprise system segment. Game consoles distribution business which started in Nov14 would make meaningful contribution in 2015. VST acquired Xiaomi MiPad distributionship on Singapore and Malaysia in Mar15 and signed agreement to

cooperate with Sugon to develop China market. We are confident that VST will report strong operating performance in 2015.

Potential upside. We leave our earnings forecasts for 2015 and 2016 un-

changed. We expect the group to release the details on development of Mi-crosoft’s cloud based products in near term. VST will benefit from increasing pop-ularity of cloud computing.

Mark Po, CFA — Senior Analyst

(852) 3698-6318

[email protected]

Wong Chi Man, CFA —Head of Research

(852) 3698-6317

[email protected]

TMT Sector—

Hardware Distribution Key takeaway from luncheon. Maintain BUY

BUY

Close: HK$3.10 (Apr 28, 2015)

Target Price: HK$3.75 (+21.0%)

Share Price Performance

Market Cap US$610m

Shares Outstanding 1,525m

Auditor KPMG

Free Float 46.8%

52W range HK$1.62-3.14

3M average daily T/O US$0.2m

Major Shareholding Chairman (36.96%)

April 28, 2015

Investment Highlights

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Apr14 Jun14 Aug14 Oct14 Dec14 Feb15

(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

Key Financials

(in HKDm)2012 2013 2014 2015E 2016E

Revenue 37,097.8 40,239.3 41,892.7 45,696.1 50,033.6

Change (YoY %) 13.7 8.5 4.1 9.1 9.5

Gross Profit 1,407.6 1,517.0 1,672.7 1,868.4 2,094.8

Gross Margin % 3.8 3.8 4.0 4.1 4.2

Net Profit 444.4 502.7 607.4 673.2 777.8

Net Margin % 1.2 1.2 1.4 1.5 1.6

EPS (Basic) 0.30 0.34 0.41 0.44 0.51

Change (YoY %) (18.9) 13.1 20.4 8.5 15.5

DPS $0.080 $0.080 $0.110 $0.132 $0.102

ROE (%) 15.9 15.7 16.5 16.0 16.4

Dividend Yield (%) 2.58 2.58 3.55 4.27 3.29

PER (x) n.a. 9.2 7.6 7.0 6.1

PBR (x) 1.3 1.4 1.2 1.1 0.9

FCF Yield (%) -12.07% 1.94% -2.82% 6.98% 8.08%

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Figure 1: Earnings projection

Sources: Company, CGIHK Research

Income Statement (HKDm) FY2012 FY2013 FY2014 FY2015F FY2016F Cash Flow Statement (HKDm) FY2012 FY2013 FY2014 FY2015F FY2016F

Revenue 37,098 40,239 41,893 45,696 50,034 Net Income 604 699 833 912 1,049

Growth yoy% 13.7% 8.5% 4.1% 9.1% 9.5% Depreciation & Amort. 19 20 21 22 24

Gross Profit 1,408 1,517 1,673 1,868 2,095 Change in Working Capital (1,347) (585) (1,010) (476) (543)

Growth yoy% (7.0%) 7.8% 10.3% 11.7% 12.1% Cash from Ops. (725) 134 (156) 458 529

Selling General & Admin Exp. (817) (866) (844) (961) (1,051) Capital Expenditure (14) (15) (17) (20) (23)

Others Operating Expenses/Items 13 48 4 5 5 Sale of Property, Plant, and Equipment - - - - -

Operating Income 604 699 833 912 1,049 Change in Investing Acitivities 14 (12) (101) (8) (10)

Growth yoy% n.a. 15.7% 19.2% 9.4% 15.0% Cash from Investing 1 (27) (118) (27) (33)

Interest Expense (75.9) (81.2) (104.4) (129.9) (142.2) Net increase in bank borrowings 380 438 859 323 368

Interest and Invest. Income 7.8 8.5 10.9 13.3 16.0

Income/(Loss) from Affiliates 36.3 32.9 29.5 31.6 33.2 Issuance of Common Stock 0 0 90 0 0

Other Non-Operating Inc. (Exp.) 0 0 0 0 0 Common Dividends Paid (99) (99) (120) (168) (202)

Impairment of Goodwill - - - - - Special Dividend Paid - - - - -

Gain (Loss) On Sale Of Invest. - - - - - Other Financing Activities (248) (192) (222) (254) (286)

Gain (Loss) On Sale Of Assets - - - - - Cash from Financing 33 146 607 (99) (119)

Income Tax Expense (107) (134) (143) (153) (178)

Minority Int. in Earnings (20) (22) (18) 0 0 Net Change in Cash (691) 253 333 331 377

Net Income 444 503 607 673 778

Growth yoy% (3.9%) 13.1% 20.8% 10.8% 15.5%

Balance Sheet (HKDm) FY2012 FY2013 FY2014 FY2015F FY2016F Ratios FY2012 FY2013 FY2014 FY2015F FY2016F

ASSETS Profitability

Cash And Equivalents 936 1,169 1,496 1,819 2,188 Return on Assets % 4.8% 4.7% 4.9% 4.9% 5.1%

Receivables 5,340 6,861 7,658 8,353 9,146 Return on Capital % 10.0% 9.7% 10.0% 9.7% 10.1%

Inventory 2,723 2,644 3,085 3,365 3,685 Return on Equity % 15.9% 15.7% 16.5% 16.0% 16.4%

Other Current Assets 0 0 0 0 0

Total Current Assets 9,000 10,674 12,239 13,537 15,018 Margin Analysis

Net Property, Plant & Equipment 123 116 112 109 108 Gross Margin % 3.8% 3.8% 4.0% 4.1% 4.2%

Long-term Investments - - - - - SG&A Margin % 2.2% 2.2% 2.0% 2.1% 2.1%

Other Intangibles - - - - - EBIT Margin % 1.6% 1.8% 2.0% 2.0% 2.1%

Deferred Tax Assets, LT - - - - - EBITDA Margin % 1.7% 1.8% 2.1% 2.1% 2.2%

Other Long-Term Assets 725 738 780 819 861 Net Income Margin % 1.2% 1.2% 1.4% 1.5% 1.6%

Goodwill - - - - -

Accounts Receivable Long-Term - - - - - Asset Turnover

Total Long Term Assets 848 853 892 929 970 Total Asset Turnover 3.8x 3.5x 3.2x 3.2x 3.1x

Total Assets 9,847 11,528 13,130 14,466 15,988 Fixed Asset Turnover 43.8x 47.2x 47.0x 49.2x 51.6x

Accounts Receivable Turnover 7.9x 6.6x 5.8x 5.7x 5.7x

LIABILITIES & EQUITY Inventory Turnover 13.6x 15.2x 13.6x 13.6x 13.6x

Accounts Payable 4,266 5,125 5,496 5,995 6,564

Accrued Exp. - - - - - Liquidity

Short-term Borrowings 1,547 2,002 3,557 3,880 4,248 Current Ratio 1.5x 1.5x 1.3x 1.4x 1.4x

Curr. Port. of LT Debt - - - - - Quick Ratio 1.1x 1.1x 1.0x 1.0x 1.0x

Curr. Income Taxes Payable - - - - - Avg. Days Sales Out. 52.5 62.2 66.7 66.7 66.7

Unearned Revenue, Current - - - - - Avg. Days Inventory Out. 26.8 24.0 26.9 26.9 26.9

Other Current Liabilities 26 31 39 43 47 Avg. Days Payable Out. 40.9 44.3 48.2 47.8 47.8

Total Current Liabilities 5,840 7,159 9,092 9,918 10,860 Avg. Cash Conversion Cycle 38.4 40.7 46.8 46.9 46.9

Long-Term Debt 719 696 0 0 0 Net Debt to Equity 44% 45% 52% 46% 41%

Def. Tax Liability, Non-Curr. 30 37 36 40 44

Other Non-Current Liabilities 24 15 8 8 9 Growth Over Prior Year

Total Liabilities 6,613 7,907 9,136 9,967 10,913 Total Revenue 13.7% 8.5% 4.1% 9.1% 9.5%

Common Stock 124 149 153 153 153 Net Income (3.9%) 13.1% 20.8% 10.8% 15.5%

Additional Paid In Capital - - - - - Payout Ratio % 21.7% 26.8% 23.7% 27.1% 30.0%

Retained Earnings 2,877 3,239 3,802 4,308 4,883

Treasury Stock - - - 0 0

Comprehensive Inc. and Other - - - - -

Minority Interest 234.0 231.9 38.2 38.2 38.2

Total Equity 3,235 3,620 3,993 4,498 5,074

Total Liabilities And Equity 9,847 11,528 13,129 14,465 15,987

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Figure 2: Peer comparison

Sources: Bloomberg, Company, CGIHK Research estimates for covered stocks

Ticker Company PE EV/EBITDA

Price Market Cap 2015F 2016F 2017F 2015F 2016F 2017F 2014 2015F 2014 2015F 2014 2015F 2014 2015F

Lcy US$m x x x x x x x x % % % % % %

HK Listed Distributors and Software plays

856 HK Vst Holdings Ltd 3.10 610 6.9 6.2 5.9 7.2 6.5 6.1 1.2 1.1 15.7 15.9 4.9 5.0 3.8 4.3

400 HK Cogobuy Group 9.91 1,724 31.4 23.5 18.7 26.9 20.3 15.5 19.3 5.4 44.0 17.1 n.a. 7.9 n.a. n.a.

861 HK Digital China Holdings Ltd 12.10 1,708 13.9 12.5 10.1 12.9 11.2 9.4 1.5 1.4 3.9 10.0 2.2 3.0 1.7 2.0

1184 HK Sas Dragon Holdings Ltd 2.00 161 n.a. n.a. n.a. n.a. n.a. n.a. 1.5 n.a. 24.7 n.a. 5.3 n.a. 6.5 n.a.

1588 HK Chanjet Information Tech-H 27.70 776 24.5 20.2 15.3 n.a. n.a. n.a. 3.9 3.4 22.4 12.1 n.a. 10.8 1.8 3.1

1297 HK Sinosoft Technology Group Lt 6.01 800 27.7 22.5 21.4 19.6 15.3 14.4 6.7 5.5 23.6 19.4 17.6 17.8 0.4 0.7

2280 HK Hc International Inc 13.10 1,128 26.0 18.5 16.2 15.0 12.3 9.7 6.0 4.3 24.7 23.8 7.2 9.8 0.0 0.0

268 HK Kingdee International Sftw r 4.48 1,498 34.9 28.8 23.7 14.1 12.4 10.9 4.7 4.3 7.6 12.4 4.7 6.3 0.3 0.5

354 HK Chinasoft International Ltd 4.43 1,074 25.0 19.5 13.2 14.4 12.1 n.a. 4.3 2.3 7.1 10.0 4.6 5.2 0.0 n.a.

Average 26.2 20.8 17.0 17.2 13.9 12.0 6.0 3.8 19.7 15.0 6.9 8.7 1.5 1.3

Overseas Listed Distributors

AVT US Avnet Inc 43.47 5,904 9.7 9.2 8.7 6.6 6.4 6.0 1.3 1.3 11.0 11.5 5.6 5.5 1.4 1.5

ARW US Arrow Electronics Inc 61.95 5,928 10.0 9.3 9.2 7.1 6.8 6.3 1.4 1.3 9.8 13.2 4.1 4.8 0.0 0.0

3702 TT Wpg Holdings Ltd 38.30 2,072 9.8 9.3 n.a. 12.8 12.0 n.a. 1.4 1.4 12.2 14.5 3.9 4.1 n.a. 7.3

ECM LN Electrocomponents Plc 243.50 1,622 18.9 17.6 15.9 10.5 9.9 9.1 3.0 2.9 15.9 15.6 9.6 n.a. 4.8 4.8

3036 TT Wt Microelectronics Co Ltd 47.00 625 8.8 8.2 n.a. 9.9 9.3 n.a. 1.2 1.2 11.4 14.3 4.8 5.1 n.a. 7.8

Average 11.4 10.7 11.3 9.4 8.9 7.2 1.7 1.6 12.1 13.8 5.6 4.8 2.1 4.3

Overseas Listed Online Platforms

BABA US Alibaba Group Holding-Sp Adr 84.57 208,466 38.9 30.4 22.8 30.4 22.7 17.1 9.5 9.4 n.a. 33.8 14.3 16.5 0.0 0.0

JD US Jd.Com Inc-Adr 34.72 47,979 629.5 108.0 55.3 n.a. 115.6 36.1 7.9 10.4 -165.4 0.9 n.a. -1.1 n.a. 0.0

DANG US E-Commerce China-Spon Adr -A 9.13 737 51.1 18.6 10.1 26.0 9.3 4.6 6.8 6.2 -21.8 15.2 2.2 3.2 0.0 0.0

LITB US Lightinthebox Holding-Adr 4.99 241 n.a. n.a. n.a. n.a. 191.0 n.a. 5.6 n.a. n.a. n.a. -26.0 n.a. 0.0 n.a.

JMEI US Jumei International-Adr 22.10 3,163 43.3 26.3 18.8 42.0 20.6 12.7 3.4 5.3 52.1 13.1 14.0 8.6 0.0 0.0

GSOL US Global Sources Ltd 5.52 165 n.a. n.a. n.a. n.a. n.a. n.a. 1.0 n.a. 17.7 n.a. 5.6 n.a. 0.0 n.a.

Average 190.7 45.8 26.8 32.8 71.8 17.6 5.7 7.8 -29.4 15.8 2.0 6.8 0.0 0.0

ROA Div yieldP/B ROE

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China Longyuan Power Group [0916.HK]

Longyuan’s net profit in Q1 2015 came in at RMB1,029m (+43% YoY). Adjusting

for the change in value of trading securities (Q1 2015: RMB13m gain; Q1 2014

RMB63m loss), core net profit in Q1 was RMB1,016m (+30% YoY), better than

our expectation, thanks to a 46% YoY surge of coal power net profit. We raised

our 2015E/2016E earnings estimates by 9%/12% after revising our coal power

utilization hours, unit fuel cost as well as finance cost. We raised our DCF-based

TP to HK$11.00 from HK$9.70 accordingly. Maintain BUY.

Q1 2015 revenue growth slightly below our expectation. Revenue in-

creased by 12% YoY in Q1. Wind power revenue grew 15.5% YoY, versus a

gross wind power generation growth of 17.5%. Coal power revenue in-

creased by 7% YoY, less than the gross coal power generation growth of

9.4% due to lower tariff.

Strong earnings came from the cost side. EBIT increased by 16% YoY,

higher than the revenue growth due to continuous improvement in cost con-

trol. Besides, net finance cost dropped 11% YoY to RMB717m due to: (1)

higher finance income helped by gain on securities; (2) income of RMB20m

contributed by Guodian Financial Leasing; (3) lower interest rate.

Coal power net profit +46% YoY. According to management, strong profit

growth was driven by (1) increase in utilization in Q1 2015 YoY (maintenance

work in Q1 2014); (2) a 16% YoY decline in coal cost.

Wind power utilization hours on track. Management revealed that wind

utilization in Q1 2015 was 547 hours. Grid curtailment rate slightly dropped to

14.52% in Q1 2015 from 14.74% in Q1 2014. Besides, according to our

check, China’s average wind speed in April increased by 11% YoY, suggest-

ing that Longyuan will likely report a strong set of power generation figures

next month.

Accelerating wind power installation the key growth driver over the

next two years. Longyuan added 84MW of new wind power capacity in Q1.

Management reiterated its target of adding 1GW capacity by middle of the

year. Full year installation remains unchanged at 1.8-2.2GW.

Risks: (1) Potential change in tariff; (2) capacity ramp-up risk; (3) delay in

power transmission line construction.

Wayne Fung, CFA —Analyst

(852) 3698-6319

[email protected]

Wong Chi Man, CFA—Head of Research

(852) 3698-6317

[email protected]

Wind Power Sector

Q1 2015 Core profit growth 30% YoY better than expectation on

cost reduction; Maintain BUY

BUY (Unchanged)

Close: HK$9.93 (Apr 27, 2015)

Target Price: HK$11.00 (+11%)


Market Cap US$10,317m

Shares Outstanding 8,036.4m

Auditor KPMG

Free Float 35%

52W range HK$7.12-11.36

3M average daily T/O US$27m

Major Shareholding Guodian Group

(58.4%)

April 28, 2015

Key financials (RMB m) 2012 2013 2014 2015E 2016E

Revenue 17,288 19,123 18,207 20,430 22,386

Change (YoY) 7.0% 10.6% -4.8% 12.2% 9.6%

Other income 1,296 432 437 469 647

Adjusted EBIT 4,749 5,568 6,121 7,836 8,891

Change (YoY) 26.1% 17.2% 9.9% 28.0% 13.5%

Recurring net profit 1,788 2,404 2,633 3,368 4,124

Change (YoY) 5.6% 34.4% 9.5% 27.9% 22.5%

Recurring EPS 0.239 0.299 0.328 0.419 0.513

Change (YoY) 5.4% 25.1% 9.5% 27.9% 22.5%

PER (x) 33.7 26.2 24.1 19.1 15.6

Dividend yield 0.8% 0.6% 0.8% 0.9% 1.2%

PBR (x) 2.0 2.0 1.9 1.8 1.6

EV/EBITDA (x) 13.0 12.2 10.9 9.1 8.0

Net debt/equity 146.9% 144.4% 165.1% 162.0% 157.7%

Recurring ROE 6.5% 8.0% 8.2% 9.8% 10.9%

Sources: Company, CGIHK Research estimates

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Figure 1: Longyuan quarterly results


Figure 2: DCF valuation Figure 3: Longyuan PER Band

Sources: Company, Bloomberg, CGIHK Research estimates

Quarterly financials (RMB m) 1Q14 1Q15 Chg (YoY)

Revenue by sector (ex. Service concession construction revenue) 4,367 4,888 11.9%

Wind power 2,790 3,221 15.5%

Coal power 1,413 1,510 6.9%

Others (including intersegment revenue) 165 157 -5.0%

Service concession construction revenue 10 7 -25.7%

Total revenue (including non-cash revenue) 4,377 4,895 11.8%

Other net income 117 95 -18.7%

EBIT 1,862 2,153 15.7%

Net finance expenses (805) (715) -11.2%

Share of profit/(loss) of JV and associates 42 88 111.0%

Pretax profit 1,098 1,526 39.0%

Income tax (126) (180) 42.9%

After tax profit 972 1,346 38.5%

Minority interest (254) (318) 25.1%

Net profit 719 1,029 43.2%

Recurring net profit 782 1,016 30.0%

EBIT margin 42.6% 44.1%

Pretax profit margin 25.2% 31.2%

(RMB m)

Enterprise Value 140,939

Net cash / (net debt) (67,443)

Minority interest (7,792)

Equity Value 65,704

Fair value (Rmb/shr) 8.8

Rmb/HK$ 1.25

Fair value (HK$/shr) 11.0

DCF assumptions

Risk free rate 3.5%

Risk premium 10.0%

Beta 0.8

Cost of equity 11.7%

After tax cost of debt 4.9%

Debt/total capital 60.0%

WACC 7.6%

Terminal growth rate 1%

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Figure 4: Key Assumptions


2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Wind power

Capacity installed (MW)

Consolidated 587 1,298 2,503 4,504 6,556 8,598 10,544 11,910 13,543 15,343 17,143

Change YoY - 121.3% 92.8% 79.9% 45.6% 31.1% 22.6% 13.0% 13.7% 13.3% 11.7%

Annual addition 712 1,205 2,001 2,053 2,042 1,945 1,366 1,633 1,800 1,800

Average 254 653 1,553 2,718 4,577 6,592 8,474 10,388 11,661 13,402 15,202

Change YoY - 157.0% 137.7% 75.1% 68.4% 44.0% 28.5% 22.6% 12.2% 14.9% 13.4%

Consolidated power generation (Gwh)

Gross 562 1,514 3,655 6,211 10,094 13,355 16,820 21,929 23,088 27,749 32,153

Change YoY - 169.5% 141.5% 69.9% 62.5% 32.3% 25.9% 30.4% 5.3% 20.2% 15.9%

Net 529 1,419 3,407 5,684 9,442 12,562 16,027 20,565 22,131 26,362 30,545

Change YoY - 168.0% 140.1% 66.8% 66.1% 33.0% 27.6% 28.3% 7.6% 19.1% 15.9%

Average utilization hours 2,211 2,317 2,354 2,268 2,217 2,026 1,985 2,111 1,980 2,071 2,115

Change YoY - 4.8% 1.6% -3.7% -2.2% -8.6% -2.0% 6.3% -6.2% 4.6% 2.1%

Weighted average on-grid tariff (Rmb/kwh, Incl-VAT) 0.672 0.598 0.561 0.567 0.572 0.578 0.582 0.583 0.585 0.586 0.583

Weighted average on-grid tariff (Rmb/kwh, ex-VAT) 0.574 0.511 0.480 0.485 0.489 0.494 0.498 0.498 0.500 0.501 0.498

Change YoY - -11.0% -6.2% 1.1% 0.8% 1.0% 0.8% 0.1% 0.3% 0.2% -0.5%

Coal power

Capacity installed (MW)

Consolidated 2,425 2,425 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875

Change YoY - 0.0% -22.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Average 2,425 2,425 2,103 1,875 1,875 1,875 1,875 1,875 1,875 1,875 1,875

Change YoY - 0.0% -13.3% -10.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Consolidated power generation (Gwh)

Gross 12,809 12,442 12,670 10,910 11,353 11,749 11,231 11,064 9,641 10,313 10,313

Change YoY - -2.9% 1.8% -13.9% 4.1% 3.5% -4.4% -1.5% -12.9% 7.0% 0.0%

Net 11,980 11,638 11,863 10,207 10,670 10,672 10,497 10,330 8,966 9,591 9,591

Change YoY - -2.9% 1.9% -14.0% 4.5% 0.0% -1.6% -1.6% -13.2% 7.0% 0.0%

Average Utilization hours 5,282 5,131 6,024 5,819 6,055 6,266 5,990 5,901 5,142 5,500 5,500

Change YoY - -2.9% 17.4% -3.4% 4.1% 3.5% -4.4% -1.5% -12.9% 7.0% 0.0%

Weighted average on-grid tariff (Rmb/kwh, Incl-VAT) 0.371 0.369 0.403 0.421 0.423 0.433 0.452 0.448 0.439 0.425 0.410

Weighted average on-grid tariff (Rmb/kwh, ex-VAT) 0.317 0.315 0.345 0.360 0.362 0.370 0.386 0.383 0.375 0.363 0.350

Change YoY - -0.6% 9.3% 4.4% 0.5% 2.4% 4.4% -0.9% -2.0% -3.2% -3.5%

8

Figure 5: Longyuan income statement projection

Note: Adjusted EBITDA and adjusted EBIT exclude "other net income"

Net interest coverage = EBITDA/net finance expenses


Income Statement (RMB m) 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Revenue by sector (ex. Service concession construction revenue) 6,354 8,861 12,762 15,366 16,770 18,456 17,980 20,430 22,386

Wind power 1,638 2,754 4,620 6,212 7,981 10,272 11,133 13,205 15,218

Coal power 4,373 5,873 7,714 8,625 8,052 7,525 6,156 6,281 6,158

Others 455 563 695 740 1,007 1,099 1,196 1,464 1,530

Intersegment revenue (112) (329) (267) (210) (270) (441) (505) (520) (520)

Revenue by nature 8,555 9,744 14,213 16,159 17,288 19,123 18,207 20,430 22,386

Sales of electricity 5,752 6,467 8,544 10,270 12,404 14,686 14,913 17,313 19,259

Sales of steam 121 230 311 319 274 252 227 226 218

Service concession construction revenue 2,200 883 1,450 793 519 667 228 0 0

Sales of electricity equipment 264 128 262 289 232 106 130 130 130

Sales of coal 0 1,648 3,276 4,109 3,395 3,010 2,388 2,388 2,388

Others 218 388 369 378 464 402 322 373 390

Other net income 390 574 986 1,271 1,296 432 437 469 647

Government grants

CERs and VERs income 118 210 392 727 742 54 0 0 0

Others 208 327 362 400 402 346 383 459 636

Rental income from investment ppt 25 22 18 15 11 9 9 10 11

Net (loss)/income from investment ppt/disposal of PP&E 21 4 (3) 112 8 6 (4) 0 0

Gain on disposal of associate/subsidary 0 0 187 0 0 5 29 0 0

Others 19 10 29 17 133 12 21 0 0

Operating expenses (6,441) (5,869) (8,882) (9,549) (8,842) (9,163) (7,085) (6,962) (7,161)

Coal consumption (3,128) (2,290) (2,737) (2,877) (2,627) (2,226) (1,741) (1,608) (1,518)

Coal sales costs 0 (1,553) (3,046) (3,897) (3,197) (2,860) (2,247) (2,269) (2,269)

Service concession construction costs (2,200) (883) (1,450) (793) (519) (667) (228) 0 0

Personnel costs (384) (540) (662) (769) (925) (1,115) (1,225) (1,282) (1,457)

Material costs (295) (150) (278) (328) (479) (398) (344) (486) (446)

Repairs & maintenance (87) (108) (184) (254) (305) (521) (450) (507) (589)

Administrative expenses (107) (148) (219) (294) (402) (396) (378) (358) (390)

Others (240) (197) (305) (338) (390) (980) (474) (453) (493)

EBITDA 2,504 4,449 6,317 7,882 9,742 10,391 11,559 13,937 15,872

Adjusted EBITDA 2,113 3,875 5,331 6,610 8,446 9,959 11,122 13,468 15,225

D&A (1,083) (1,590) (2,236) (2,845) (3,697) (4,391) (5,001) (5,632) (6,334)

EBIT 1,421 2,858 4,081 5,036 6,045 6,000 6,559 8,305 9,538

Adjusted EBIT 1,031 2,285 3,095 3,765 4,749 5,568 6,121 7,836 8,891

Net finance expenses (857) (1,020) (1,098) (1,487) (2,518) (2,531) (2,951) (3,861) (4,176)

Finance income 146 51 79 400 143 540 198 119 52

Finance expenses (1,003) (1,071) (1,177) (1,887) (2,660) (3,071) (3,149) (3,980) (4,228)

Share of profit/(loss) of JV and associates 53 105 228 60 140 60 454 612 632

Pretax profit 616 1,944 3,211 3,609 3,667 3,529 4,062 5,056 5,994

Income tax (2) (296) (441) (305) (342) (561) (510) (683) (839)

After tax profit 614 1,647 2,770 3,304 3,325 2,968 3,551 4,374 5,155

Minority interest (276) (753) (751) (667) (732) (919) (993) (1,006) (1,031)

Net profit 337 894 2,019 2,638 2,593 2,049 2,558 3,368 4,124

Recurring net profit 199 679 1,461 1,693 1,788 2,404 2,633 3,368 4,124

Exceptional gain/(loss) 139 215 558 945 805 (354) (75) 0 0

Recurring EPS (RMB) 0.04 0.13 0.20 0.23 0.24 0.30 0.33 0.42 0.51

EPS (RMB) 0.07 0.17 0.27 0.35 0.35 0.26 0.32 0.42 0.51

DPS (RMB) 0.00 0.00 0.05 0.07 0.07 0.05 0.06 0.08 0.09

9

Figure 6: Longyuan growth rate and margins


Growth rates (YoY) 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Revenue by sector (ex. Service concession construction revenue) 30.0% 39.5% 44.0% 20.4% 9.1% 10.1% -2.6% 13.6% 9.6%

Wind power 125.4% 68.1% 67.8% 34.4% 28.5% 28.7% 8.4% 18.6% 15.2%

Coal power 8.8% 34.3% 31.3% 11.8% -6.6% -6.5% -18.2% 2.0% -2.0%

Others 92.7% 23.7% 23.4% 6.5% 36.0% 9.2% 8.9% 22.4% 4.5%

Intersegment revenue 22.7% 193.0% -19.0% -21.2% 28.4% 63.3% 14.6% 3.0% 0.0%

Revenue by nature 22.9% 13.9% 45.9% 13.7% 7.0% 10.6% -4.8% 12.2% 9.6%

Sales of electricity 30.4% 12.4% 32.1% 20.2% 20.8% 18.4% 1.5% 16.1% 11.2%

Sales of steam 33.3% 91.1% 35.0% 2.6% -14.3% -7.7% -10.2% -0.1% -3.5%

Service concession construction revenue 6.1% -59.9% 64.3% -45.3% n/a n/a n/a n/a n/a

Sales of electricity equipment 162.0% -51.5% 104.5% 10.5% -19.8% -54.5% 23.1% 0.0% 0.0%

Sales of coal n/a n/a 98.8% 25.4% -17.4% -11.4% -20.7% 0.0% 0.0%

Others -23.8% 78.1% -4.8% 2.4% 22.8% -13.4% -20.0% 15.8% 4.8%

EBITDA 32.0% 77.7% 42.0% 24.8% 23.6% 6.7% 11.2% 20.6% 13.9%

Adjusted EBITDA 22.3% 83.3% 37.6% 24.0% 27.8% 17.9% 11.7% 21.1% 13.0%

EBIT 47.0% 155.6% 187.3% 76.2% 48.1% 19.1% 8.5% 38.4% 45.4%

Adjusted EBIT 8.5% 121.7% 35.5% 21.6% 26.1% 17.2% 9.9% 28.0% 13.5%

Pretax profit -20.3% 215.5% 65.2% 12.4% 1.6% -3.8% 15.1% 24.5% 18.5%

After tax profit -13.8% 168.3% 68.2% 19.3% 0.6% -10.7% 19.7% 23.1% 17.9%

Net profit 56.9% 165.0% 125.8% 30.7% -1.7% -21.0% 24.8% 31.7% 22.5%

Recurring net profit -7.7% 242.1% 115.1% 15.9% 5.6% 34.4% 9.5% 27.9% 22.5%

EPS n/a 157.9% 55.4% 30.7% -1.9% -26.4% 24.8% 31.7% 22.5%

Recurring EPS n/a 232.9% 48.0% 15.9% 5.4% 25.1% 9.5% 27.9% 22.5%

Margins 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

EBITDA margin 39.4% 50.2% 49.5% 51.3% 58.1% 56.3% 64.3% 68.2% 70.9%

Adjusted EBITDA margin 33.3% 43.7% 41.8% 43.0% 50.4% 54.0% 61.9% 65.9% 68.0%

EBIT margin 22.4% 32.3% 32.0% 32.8% 36.0% 32.5% 36.5% 40.7% 42.6%

Adjusted EBIT margin 16.2% 25.8% 24.3% 24.5% 28.3% 30.2% 34.0% 38.4% 39.7%

Pretax profit margin 9.7% 21.9% 25.2% 23.5% 21.9% 19.1% 22.6% 24.7% 26.8%

After tax profit margin 9.7% 18.6% 21.7% 21.5% 19.8% 16.1% 19.8% 21.4% 23.0%

Net margin 5.3% 10.1% 15.8% 17.2% 15.5% 11.1% 14.2% 16.5% 18.4%

Recurring net margin 3.1% 7.7% 11.4% 11.0% 10.7% 13.0% 14.6% 16.5% 18.4%

Net Interest coverage 2.9 4.4 5.8 5.3 3.9 4.1 3.9 3.6 3.8

10

Figure 7: Longyuan balance sheet projection


Balance Sheet (RMB m) 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Non current assets

PP&E 24,290 37,305 50,642 64,967 73,352 79,594 88,307 97,132 105,685

Investment properties 172 133 101 98 76 20 5 5 5

Lease prepayments payments 557 741 876 1,215 1,417 1,657 1,873 1,873 1,873

Intangible assets 5,083 6,086 7,661 8,163 8,322 8,684 8,530 8,101 7,673

Goodwill 0 0 12 12 12 12 12 12 12

Investment in associates and JV 527 799 1,315 1,554 2,127 2,297 3,602 4,215 4,847

Other assets 350 2,319 3,459 4,962 4,553 4,482 6,282 6,507 6,408

Deferred tax assets 190 205 206 181 194 162 155 155 155

31,169 47,587 64,271 81,151 90,054 96,908 108,765 117,999 126,657

Current assets

Inventories 279 333 632 926 816 753 1,017 700 1,066

Trade and bill receivables 1,241 2,181 3,474 5,430 7,998 6,708 6,411 6,463 7,030

Prepayments and other current assets 1,805 853 1,502 2,899 3,155 2,365 4,072 4,072 4,072

Restricted deposits 500 492 245 32 232 725 440 440 440

Cash 1,055 16,503 4,089 3,708 5,138 2,715 2,389 2,365 1,110

Others 1 5 419 478 448 500 425 425 425

4,880 20,367 10,362 13,473 17,786 13,766 14,753 14,463 14,142

Total assets 36,049 67,954 74,634 94,624 107,840 110,674 123,518 132,463 140,800

Current liabilities

Borrowings 4,686 17,087 17,200 19,078 26,170 24,680 36,070 37,670 40,270

Trade and bill payable 2,729 1,943 1,515 1,597 1,261 2,142 1,021 1,535 1,133

Obligations under finance lease 0 0 0 0 0 0 0 0 0

Other payables 1,918 4,521 6,004 9,004 8,525 9,753 9,039 8,703 9,021

Others 80 140 196 158 119 101 118 118 118

9,413 23,692 24,915 29,836 36,075 36,676 46,248 48,027 50,542

Non current liabilities

Borrowings 17,345 16,219 19,975 31,828 32,482 32,961 33,762 37,162 38,562

Deferred income 2,145 2,268 2,225 1,993 1,903 1,876 1,790 1,662 1,535

Others 73 95 104 642 958 1,120 868 868 868

19,564 18,582 22,304 34,462 35,343 35,957 36,421 39,693 40,965

Equity

Paid in capital 3,163 7,464 7,464 7,464 8,036 8,036 8,036 8,036 8,036

Reserves 712 14,436 15,810 18,444 21,393 22,872 25,021 27,909 31,426

Attributable to equity owner 3,875 21,900 23,275 25,909 29,429 30,908 33,057 35,945 39,463

Minority interests 3,198 3,780 4,139 4,417 6,992 7,132 7,792 8,798 9,829

7,073 25,680 27,414 30,325 36,422 38,040 40,849 44,743 49,292

Total equity and liabilities 36,049 67,954 74,634 94,624 107,840 110,674 123,518 132,463 140,800

BVPS (RMB) - 2.93 3.12 3.47 3.94 3.85 4.11 4.47 4.91

11

Figure 8: Longyuan cash flow projection and key ratios


Cash Flow Statement (RMB m) 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Pretax profit 616 1,944 3,211 3,609 3,667 3,529 4,062 5,056 5,994

Income tax (45) (236) (340) (371) (471) (566) (522) (683) (839)

D&A 1,083 1,590 2,236 2,845 3,697 4,391 5,001 5,632 6,334

Interest expense 932 1,024 1,088 1,677 2,551 2,810 2,971 3,980 4,228

Interest income (37) (33) (58) (110) (60) (60) (84) (119) (52)

Share of profit / (loss) of JV and associates (53) (105) (228) (60) (140) (60) (454) (612) (632)

Dividend income (47) (16) (1) (62) (46) (56) (55) 0 0

Change in working capital 360 (83) (1,813) (1,633) (2,370) 3,085 1,976 316 (1,046)

Others 30 1 (74) (272) 169 538 (26) 0 0

Operating cash flow 2,840 4,085 4,021 5,624 6,998 13,611 12,868 13,570 13,986

Purchase/(disposal) of PP&E and intangible assets (11,578) (16,121) (17,770) (13,048) (13,392) (10,275) (18,206) (13,860) (14,040)

Acquisition of subsidiaries/disposal of subsidiaries 0 8 (65) (493) (847) (197) (24) 0 0

Investment in/(disposal of) financial assets, JV & associates (253) (340) (138) (578) (912) (175) (867) 0 0

Dividend received 96 30 45 161 91 218 67 0 0

Interest received 48 32 58 124 87 86 105 119 52

Others 602 1,235 170 (199) 855 45 (1,921) 0 0

Investing cash flow (11,086) (15,156) (17,700) (14,034) (14,117) (10,299) (20,848) (13,741) (13,988)

Net proceeds from issuance of shares 0 17,022 0 0 2,295 0 0 0 0

Capital contribution - equity owner 1,500 492 126 72 30 41 186 0 0

Capital contribution - minority interest 451 0 0 0 0 0 0 0 0

Proceeds from /(repayment of) borrowings 7,922 10,952 3,677 10,506 8,067 (1,272) 12,028 5,000 4,000

Proceeds from senior perpetual securities 0 0 0 0 2,476 0 0 0 0

Interest paid (1,119) (1,567) (1,319) (2,094) (3,025) (3,251) (3,376) (4,374) (4,647)

Dividend paid to equity owner 0 0 (632) (403) (515) (512) (382) (480) (606)

Others (310) (325) (539) (444) (472) (668) (801) 0 0

Financing cash flow 8,444 26,575 1,313 7,637 8,856 (5,662) 7,655 146 (1,253)

Net change in cash 198 15,505 (12,365) (773) 1,736 (2,350) (326) (24) (1,255)

Valuation

PER (recurring) (x) 221.3 66.2 43.9 36.2 33.7 26.2 24.1 19.1 15.6

Dividend yield 0.0% 0.0% 0.6% 0.8% 0.8% 0.6% 0.8% 0.9% 1.2%

PBR (x) - 3.0 2.8 2.4 2.0 2.0 1.9 1.8 1.6

EV/EBITDA (x) 50.5 28.4 20.0 16.0 13.0 12.2 10.9 9.1 8.0

Ratios

Net margin 5.3% 10.1% 15.8% 17.2% 15.5% 11.1% 14.2% 16.5% 18.4%

ROE 5.9% 5.3% 6.5% 6.9% 6.5% 8.0% 8.2% 9.8% 10.9%

ROA 0.7% 1.3% 2.0% 2.0% 1.8% 2.2% 2.2% 2.6% 3.0%

Net debt / Equity 297% 65% 121% 156% 147% 144% 165% 162% 158%

Current ratio 0.52 0.86 0.42 0.45 0.49 0.38 0.32 0.30 0.28

12

ZCSR [3898.HK]

Steve Wong

(852) 3698-6391

[email protected]

Wong Chi Man - Head of Research

(852) 3698-6317

[email protected]

Capital Goods Q1 Takeaways: Full-year KPI Target Unchanged. Reiterate

BUY

BUY (Unchanged)

Close: HK$ 64.35 (Apr 27, 2015)

Target Price: HK$76.31 (18.6%)




Auditor Ernst & Young

Free Float 48.06%

52W range HK$75.00-22.30


Major Shareholding CSR [1766 HK]

(51.94%)

April 28, 2015

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Apr-2014 Jul-2014 Oct-2014 Jan-2015 Apr-2015

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Y/E Dec 31 2012 2013 2014 2015E 2016E

Revenue (RMBm) 7,186 8,781 12,576 15,694 18,710

Net Income (RMBm) 1,224 1,467 2,395 2,642 3,120

EPS (RMB) 1.129 1.332 2.038 2.248 2.655

Growth (% YoY) 18.03 52.98 10.30 18.09

PER (x) 38.79 25.36 22.99 19.47

BVPS (RMB) 5.705 7.673 9.354 11.202 13.408

PBR (x) 6.74 5.53 4.61 3.86

DPS(RMB) 0.350 0.373 0.400 0.450 0.531

Yield (%) 0.72 0.77 0.87 1.03

ROAE (%) 21.29 19.30 23.94 21.87 21.58

Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash


ZCSR [3898.HK]

Steve Wong

(852) 3698-6391

[email protected]

Wong Chi Man - Head of Research

(852) 3698-6317

[email protected]

Capital Goods Q1 Takeaways: Full-year KPI Target Unchanged. Reiterate

BUY

BUY (Unchanged)

Close: HK$ 64.35 (Apr 27, 2015)





Auditor Ernst & Young

Free Float 48.06%

52W range HK$75.00-22.30


Major Shareholding CSR [1766 HK]

(51.94%)

April 28, 2015

Operating revenue stayed flat at RMB2bn, while net income up 26% YoY to

RMB400m, thanks to the GPM improvement. According to management, revenue

booking in Q1 2015 is in line with expectation and they reiterate the KPI on 2015

booking. We push our valuation forward from FY15E to FY15/16E, and raise our tar-

get valuation from 23x to 25x FY15/16E PER for stronger contract flow expected from

OBOR development scheme as well as increase in visibility on merger of CSR &

CNR. Our new target price is HK$ 76.31, reiterate BUY. Short term catalyst will be

the first batch of tender opening from CRC for locomotive and MUs procurement ex-

pected in Q2.

Q1 Order delivery in line with expectation. According to management, the Q1

results are in line with their expectations. They reiterate the KPI for 2015: 1) Sale

of MUs product up 20% YoY; 2) For locomotive sector, growth in overseas mar-

ket to offset the expected decline in domestic market, such that the overall seg-

ment revenue to staying flat; 3) sales growth of subway product remaining fast

and up 40% YoY. In all, we expect revenue to grow by 25% YoY in FY15E.

GPM improved thanks to change of product-mix. GPM increased by 3ppt YoY

to 38% due to change of product-mix with more contribution of high-margin MUs

products and benefit from economies of scale. However, according to manage-

ment, price cut pressure from customers will hinder the company to grow GPM

further from current level. Looking forward, we expect increase in contribution of

subway products in coming quarter will drive its GPM back to an estimated GPM

of 35% in FY15E.

Merger going smooth, restructuring will start by 2015. According to manage-

ment, merger of CSR and CNR is going smooth and expected to start the restruc-

turing process by end-2015. As mentioned in our previous report, some rolling

stock manufacturing subsidiaries of CNR have already started to study the tech-

nical feasibility on procuring ZCSR products to embed on their rolling stock. We

expect order for electrical products from CNR will come as early as 2016.

(more on next page)

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Apr-2014 Jul-2014 Oct-2014 Jan-2015 Apr-2015

(HK$m)(HK$)


Y/E Dec 31 2012 2013 2014 2015E 2016E

Revenue (RMBm) 7,186 8,781 12,576 15,694 18,710

Net Income (RMBm) 1,224 1,467 2,395 2,642 3,120

EPS (RMB) 1.129 1.332 2.038 2.248 2.655

Growth (% YoY) 18.03 52.98 10.30 18.09

PER (x) 38.79 25.36 22.99 19.47

BVPS (RMB) 5.705 7.673 9.354 11.202 13.408

PBR (x) 6.74 5.53 4.61 3.86

DPS(RMB) 0.350 0.373 0.400 0.450 0.531

Yield (%) 0.72 0.77 0.87 1.03

ROAE (%) 21.29 19.30 23.94 21.87 21.58

Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash


13

Reiterate BUY. The Q1 results are in line with our expectation. We expect con-

tract flow from overseas market to stay strong under the OBOR development

scheme, which will be a mid-to-long term growth driver for the company. We made

a minor adjustment on earnings projection based on the Q1 results and push our

valuation forward from FY15E to FY15/16E and raise our target valuation from 23x

to 25x PER (the upper ceiling of trading PER range for ZCSR since 2010), our

new target price is HK$76.31 (up from HK$63.97). The counter is trading at 20x

FY16E PER, or a 20% discount to CSR (1766.HK). Reiterate BUY.

Figure 1: Quarter financial data breakdown

Sources: Company data, CGIHK Research

Figure 2: Major changes of our forecast

Sources: CGIHK Research estimates

Finanancial summary Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 (% YoY)

Operating revenue (RMBm) 962 1,662 2,210 4,022 2,015 3,165 3,641 3,855 2,007 (0.40)

Business taxes & surcharges (RMBm) 2 19 10 44 2 28 31 39 1 (50.00)

Revenue (RMBm) 960 1,643 2,200 3,978 2,013 3,137 3,610 3,816 2,006 (0.35)

Less: Operating cost (RMBm) 644 984 1,380 2,687 1,308 2,016 2,000 2,552 1,242 (5.05)

Gross Profit (RMBm) 316 659 820 1,291 705 1,121 1,610 1,264 764 8.37

GPM (%) 32.92 40.11 37.27 32.45 35.02 35.73 44.60 33.12 38.09 3.06ppt

Selling cost (RMBm) 60 71 97 270 82 193 219 387 92 12.20

Administrative cost (RMBm) 163 203 225 414 255 239 378 477 274 7.45

SG&A (RMB mn) 223 274 322 684 337 432 597 864 366 8.61

SG&A-to-revenue (%) 23.23 16.68 14.64 17.19 16.74 13.77 16.54 22.64 18.25 1.50ppt

Net profit (RMBm) 81 319 449 618 317 540 891 647 400 26.18

Net profit margin (%) 8.44 19.42 20.41 15.54 15.75 17.21 24.68 16.95 19.94 4.19ppt

Total debt (RMBm) 24 66 62 83 86 60 52 42 44 (48.84)

Total cash and equivalents (RMBm) 2,024 1,583 801 3,136 2,914 2,729 2,885 2,680 5,140 76.39

Net debt (cash) (RMBm) (2,000) (1,517) (739) (3,053) (2,828) (2,669) (2,833) (2,638) (5,096)

Total equity (RMBm) 6,374 6,307 6,638 9,150 9,457 9,656 10,526 11,171 11,566 22.30

Net gearing (%) (31.38) (24.05) (11.13) (33.37) (29.90) (27.64) (26.91) (23.61) (44.06)

(RMBm) FY15E FY16E

Old New Change (%) Old New Change (%)

Operating revenue 15,840 15,826 (0.09) 19,392 18,867 (2.71)

Train-borne electrical systems 11,021 11,251 2.09 13,666 13,409 (1.88)

Other rolling stock components 1,922 1,679 (12.66) 2,213 1,944 (12.15)

Others 2,896 2,896 0.00 3,513 3,513 0.01

Less: business tax 131 131 0.27 139 157 12.66

Revenue 15,708 15,694 (0.09) 19,232 18,710 (2.71)

Gross profit 5,476 5,495 0.35 6,675 6,491 (2.75)

GPM (%) 34.57 34.72 0.15ppt 34.42 34.41 -0.02ppt

Net income 2,625 2,642 0.64 3,214 3,120 (2.94)

Net margin (%) 16.57 16.69 0.12ppt 16.57 16.53 -0.04ppt

EPS 2.234 2.248 0.64 2.736 2.655 (2.94)

14

Figure 3: Financial statements

Sources: CGIHK Research estimates

Consolidated income statement Consolidated balance sheet

FY Ended Dec 31 (RMBm) FY12A FY13A FY14A FY15E FY16E As of Dec 31 (RMBm) FY12A FY13A FY14A FY15E FY16E

Operating revenue 7,249 8,856 12,676 15,826 18,867 Current assets 7,203 10,813 14,166 15,410 18,905

Train-borne electrical systems 4,741 6,177 9,671 11,251 13,409 Cash and equivalent 2,319 3,136 2,680 3,581 4,564

Other rolling stock components 1,589 1,674 1,723 1,679 1,944 Trade and bill receivables 3,628 4,908 5,998 7,273 8,539

Others 919 1,005 1,282 2,896 3,513 Inventories 1,110 1,428 2,207 2,264 3,093

Other current assets 146 1,341 3,281 2,292 2,709

Less: business tax 63 75 100 131 157

Revenue 7,186 8,781 12,576 15,694 18,710 Non-current assets 2,454 2,586 2,759 4,753 4,932

PP&E 1,701 1,830 1,883 2,950 3,025

Less: COGS 4,803 5,695 7,876 10,199 12,219 Land use right 160 173 201 203 205

Gross profit 2,383 3,086 4,700 5,495 6,491 Total intangible assets 111 74 81 543 546

Long term investments 255 233 237 261 287

Less: SG&A 1,197 1,503 2,230 2,770 3,277 Other non-current assets 227 276 357 795 869

Add: Other income (loss) 131 81 191 238 285

Operating profit 1,317 1,664 2,661 2,963 3,499 Total assets 9,657 13,399 16,925 20,163 23,837

Add: Net fin income (cost) 9 27 43 26 34 Current liabilities 3,033 3,821 4,987 5,980 7,006

Add: JV, associate & others 78 13 51 50 55 Trade and bill payables 1,988 2,679 3,431 4,393 4,981

Pre-tax profit 1,404 1,704 2,755 3,039 3,588 Receipts in advance 292 388 588 530 905

Short term borrowings 41 31 4 38 41

Less: Income tax 179 238 363 395 466 Other current liabilities 712 723 964 1,020 1,079

Total net profit 1,225 1,466 2,392 2,644 3,122

Non-current liabilities 305 428 767 830 876

Less: Minority interests 1 (1) (3) 2 2 Long-term borrowings 28 52 37 63 69

Net income 1,224 1,467 2,395 2,642 3,120 Other non-current liabilities 277 376 730 767 806

EPS (RMB) 1.129 1.332 2.038 2.248 2.655

DPS (RMB) 0.350 0.373 0.400 0.450 0.531 Total liabilities 3,338 4,249 5,754 6,810 7,881

EBIT 1,395 1,677 2,712 3,013 3,554 Minority interests 135 134 180 190 201

EBITDA 1,542 1,837 2,980 3,325 3,864 Shareholders' equity 6,184 9,016 10,991 13,163 15,754

BVPS (RMB) 5.705 7.673 9.354 11.202 13.408

Consolidated cash flow statement Key ratios

FY ended Dec 31 (RMBm) FY12A FY13A FY14A FY15E FY16E FY ended Dec 31 (RMBm) FY12A FY13A FY14A FY15E FY16E

Profit before tax 1,404 1,704 2,755 3,039 3,588 Sales mixed (%)

Depreciation and amortization 147 160 271 313 310 Train-borne electrical systems 65.40 69.75 76.29 71.09 71.07

Changes in working capital (21) (867) (957) (482) (1,165) Other rolling stock components 21.92 18.90 13.59 10.61 10.30

Financial cost 16 3 3 6 6 Others 12.68 11.35 10.11 18.30 18.62

Income tax paid (129) (513) (502) (409) (482)

Others (170) 239 487 28 30 Profit & loss ratios (%)

CF Operating 1,247 726 2,057 2,494 2,288 Gross margin 33.16 35.14 37.37 35.01 34.69

Net profit margin 17.03 16.71 19.04 16.83 16.67

Increase in PP&E (382) (293) (335) (2,086) (390) Effective tax rate 12.75 13.97 13.18 13.00 13.00

Increase in investment (807) (1,101) (4,500) (24) (26)

Others 1,205 67 2,707 1,000 - Growth (%)

CF Investing 16 (1,327) (2,128) (1,110) (416) Revenue 1.51 22.20 43.22 24.80 19.22

Gross profit (3.91) 29.50 52.30 16.92 18.12

Capital injection 10 1,776 52 - - EBIT (0.92) 20.22 61.72 11.10 17.94

Net debt financing (632) 28 (38) 59 10 EBITDA (0.06) 19.13 62.22 11.59 16.19

Dividend & interest paid (397) (382) (412) (467) (530) Net profit 3.38 19.85 63.26 10.30 18.09

Others - - - (75) (370)

CF Financing (1,019) 1,422 (398) (482) (890) Balance sheet ratios

Current ratio (x) 2.37 2.83 2.84 2.58 2.70

Net change in cash 244 821 (469) 901 983 Quick ratio (x) 2.01 2.46 2.40 2.20 2.26

Cash ratio (x) 0.76 0.82 0.54 0.60 0.65

Trade & bill receivables days 147 178 159 155 155

Trade & bill payables days 127 150 142 140 140

Inventory turnover days 106 81 84 80 80

Total debt / equity ratio (%) 1.09 0.91 0.37 0.75 0.69

Net debt / equity ratio (%) Net Cash Net Cash Net Cash Net Cash Net Cash

Returns (%)

ROAE 21.29 19.30 23.94 21.87 21.58

ROAA 13.38 12.72 15.78 14.26 14.19

Payout ratio 31.05 28.02 19.62 20.00 20.00

15

Figure 4: PER band of ZCSR in 1M10-4M15

Sources: Bloomberg, CGIHK Research

Figure 5: PBR band of ZCSR in 1M10-4M15


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Figure 6: Peer valuation table

Sources: Bloomberg, CGIHK Research estimates

Figure 7: Recent overseas railway development projects China getting involved

Sources: media, CGIHK Research

Date Event

2015-AprilPresident Xi Jinping met with Indonesian President in Jakarta Djoko on 22nd, April. And the two countries signed a bilateral cooperation documents on HSR

projects with total consideration of US$ 6bn

2015-AprilCSR plans to go head-to-head with European rivals such as Alstom SA in bidding for a range of contracts including rolling stock for Britain’s GBP 50bn High

Speed 2 rail line

2015-April Egypt signed a US$ 600m framework agreement with CRCC to renovate railway tracks along the the national railway network

2015-April China plans to construct railway to connect China and Nepal by way of Mount Everest. Total cost is estimated at US$ 1.6bn

2015-Mar India to construct high-speed rail network construction projects. Four Chinese enterprises join the tendering

2015-Mar China and Thailand signed contract on railway development project

2015-Mar China is interested in Russia's first HSR line connecting Moscow and Kazan, investing about US$5.2 bn in the construction of the project

2015-Mar Laos and China close to HSR deal in 2015, and would form part of link all the way to Singapore

2015-Mar China bids for high-speed rail between Malaysia and Singapore

Mkt cap 3M ADT 52W H 52W L 1M Chg 3M Chg 6M Chg YTD

Company Ticker US$m CRY Price (US$m) (%) (%) (%) (%) FY15E FY16E FY15E FY16E FY15E FY16E

Domestic Rolling Stock Maker

CSR-H 1766 HK 68,881 HKD 16.20 110.46 20.65 5.51 58.20 64.13 105.32 55.17 29.63 25.15 3.86 3.46 1.01 1.19

CSR CORP LTD -A 601766 CH 68,881 CNY 34.36 684.91 39.47 4.15 102.24 144.73 492.41 438.56 71.43 60.92 9.84 8.64 0.36 0.45

CHINA CNR CORP-H 6199 CH 62,484 HKD 16.82 77.78 21.95 4.99 50.99 62.04 119.58 51.26 30.20 26.28 3.69 3.35 0.97 1.08

CHINA CNR CORP-A 601299 CH 62,484 CNY 35.77 546.76 42.31 4.26 94.30 146.86 454.57 403.80 63.53 52.37 7.86 7.13 0.43 0.46

ZHUZHOU CSR-H 3898 HK 9,698 HKD 64.35 35.33 75.00 22.30 28.70 44.77 92.95 42.21 22.99 19.47 4.61 3.86 0.87 1.03

ZHUZHOU TIMES -A 600458 CH 2,279 CNY 21.56 53.17 24.45 8.25 29.26 41.66 77.01 77.01 77.00 69.55 3.63 3.51 0.28 0.43

CHANGCHUN EURA-A600697 CH 855 CNY 33.62 14.55 34.80 17.15 18.42 17.59 68.61 30.56 15.21 12.54 2.86 2.40 1.01 0.98

JINXI AXLE -A 600495 CH 2,806 CNY 26.16 112.48 28.45 7.41 7.52 22.99 37.39 9.46 109.00 N/A N/A N/A N/A N/A

Mean 48.70 68.10 180.98 138.50 52.37 38.04 5.19 4.62 0.70 0.80

International Rolling Stock Maker

ALSTOM ALO FP 9,697 EUR 29.10 4.35 30.95 24.72 0.48 1.75 8.22 8.32 24.19 17.99 1.57 1.39 0.93 1.23

BOMBARDIER INC-A BBD/A CN 4,654 CAD 2.56 0.05 4.44 2.43 (3.40) (14.67) (35.35) (38.01) 9.29 11.11 4.50 3.37

CAF CAF SM 1,154 EUR 313.00 0.31 371.00 230.10 3.51 4.58 20.62 3.52 13.42 10.73 1.35 1.23 2.68 3.15

VOSSLOH AG VOS GR 817 EUR 57.00 0.29 73.90 41.88 (0.82) (0.42) 15.40 6.54 38.49 19.81 2.07 1.87 0.84 1.75

FAIVELEY TRANSPO LEY FP 882 EUR 56.10 0.04 61.50 40.04 2.37 4.08 19.51 17.12 14.14 12.86 1.34 1.24 1.71 1.87

NIPPON SHARYO 7102 JP 436 JPY 357.00 15.80 426.00 325.00 2.88 (1.65) 6.25 0.56 34.33 23.49 1.03 0.99 0.84 0.98

KINKI SHARYO 7122 JP 221 JPY 384.00 8.44 426.00 280.00 (1.03) 15.32 31.51 17.07 -8.85 44.14

Mean 0.57 1.28 9.45 2.16 17.86 20.02 1.98 1.68 1.40 1.79

Aircraft Maker

BOEING CO/THE BA US FP 101,965 USD 148.40 88.43 158.83 116.32 (0.30) 12.02 21.52 14.17 17.44 16.03 12.87 14.19 2.45 2.61

AIRBUS GROUP NV AIR FP CN 54,309 EUR 64.11 21.45 66.10 39.64 6.12 30.65 43.23 55.04 18.88 17.95 5.28 4.43 2.10 2.31

Mean 2.91 21.33 32.38 34.61 18.16 16.99 9.07 9.31 2.28 2.46

27-April-2015 PE (x) PB (x) Yield (%)

17

China Resources Cement [1313.HK]

HOLD

Close: HK$5.03 (April 27, 2015)


Price Performance


Shares Outstanding 6,532.9m

Auditor Deloitte

Free Float 26.6%

52W range HK$4.2-6.0

3M average daily T/O US$8.00m

Major Shareholder China Resources

Holdings (73.0%)

Sources: Company, Bloomberg

Wong Chi Man—Head of Research

(852) 3698-6317

[email protected]

Nevin Ning—Analyst

(852) 3698-6321

[email protected]

China Cement Sector


During the company’s post-results telephone conference yesterday, management has

seen some recent signs of gradual demand recovery and average selling price (ASP)

stabilization. Meanwhile, management estimated the full-year effective tax rate to stay at

28%-30% this year despite a tax reversal in Q1, as losses in some provinces could not

offset the profit in others. Overall, management is relatively conservative about the out-

look in Q2 due to seasonality and market competition but maintains a better outlook in

2H15. We maintain our HOLD rating with a target price of HK$5.20, based on 1.1x

2015E PBR (unchanged).

Investment Highlights

Full year effective tax rate probably to fall in range of 28%~30%. Q1 2015

has recorded HK$265m over-provision reversal of enterprise income tax for the

year ended 31 December 2013, while management expected over-provision

reversal of enterprise income tax for 2014 to be recorded later this year, roughly

amounting to around HK$200m. However, after considering potential losses in

Shanxi Yunnan, which could not be offset by other profitable provinces, man-

agement expected full-year effective tax rate probably to fall in range of

28%~30% (28% in FY2015).

Full year sales volume target of 80m tonnes unchanged. The 7.5% YoY

sales volume (cement & clinker) growth in Q1 was largely due to the new capac-

ity addition in late 2014, while after normalization, management maintained

2015 sales volume (cement & clinker) guidance of around 80m tonnes, implying

a ~2.6% YoY growth.

Gradual demand recovery with more meaningful price hike after Q2. Sales

volume in March reached 5.6m tonnes, while management has already wit-

nessed gradual demand recovery and estimated a roughly 7m tonnes for April

sales volume. On the other hand, management expected ASP to stabilize at

range of HK$295~HK$310/tonnes for April and May. Since rainy weather in Q2

would usually affect cement business, management viewed that more meaning-

ful price hike would come after Q2, with an expected bottoming out probably in

late August, the peak season.

Q1 Takeaways: Key Markets Stabilized but Recovery Remains Shaky

April 28, 2015

Y/E Dec 31 2012 2013 2014 2015E 2016E

Turnover (HK$m) 25,345 29,341 32,669 32,733 34,359

Recurring net profit (HK$m) 2,329 3,265 4,297 3,761 3,640

Net margin (%) 9 11 13 11 11

Recurring EPS (HK$) 0.36 0.50 0.66 0.58 0.56

% Change (39) 40 31 (12) -3

PER (x) 14.3 10.2 7.8 8.9 9.2

PBR (x) 1.6 1.3 1.2 1.1 1.0

EV/EBITDA 9.8 7.8 6.2 6.9 6.7

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18

Key financials

CR Cement (01313.HK)

Income Statement

(HK$'000, except for per share amount)

Year ended 31 Dec 1H 2H 1H 2H 1H 2H 2012 2013 2014 2015E 2016E

Cement 9,116,962 12,454,705 11,110,857 13,248,646 10,635,909 13,773,378 18,126,000 21,571,667 24,359,503 24,409,286 25,339,898

Clinker 1,143,767 782,043 968,830 611,625 643,625 683,719 2,246,901 1,925,810 1,580,455 1,327,344 1,461,219

Concrete and others 2,597,427 3,245,715 3,081,335 3,647,617 3,174,281 3,822,000 4,972,427 5,843,142 6,728,952 6,996,281 7,557,506

Revenue 12,858,156 16,482,463 15,161,022 17,507,888 14,453,815 18,279,096 25,345,328 29,340,619 32,668,910 32,732,911 34,358,623

COGS (9,891,880) (11,088,987) (10,329,772) (12,113,997) (10,567,585) (12,903,297) (19,245,807) (20,980,867) (22,443,769) (23,470,882) (25,062,207)

Gross profit 2,966,276 5,393,476 4,831,250 5,393,891 3,886,230 5,375,799 6,099,521 8,359,752 10,225,141 9,262,029 9,296,415

Operating expenses (1,556,470) (2,450,930) (1,722,174) (2,573,792) (1,806,727) (2,650,469) (3,016,817) (4,007,400) (4,295,966) (4,457,196) (4,555,304)

Operating profit 1,409,806 2,942,546 3,109,076 2,820,099 2,079,504 2,725,330 3,082,704 4,352,352 5,929,175 4,804,833 4,741,111

Other gains and losses 110,638 219,555 151,309 225,936 187,900 255,907 353,201 330,193 377,245 443,807 465,796

EBIT 1,520,444 3,162,101 3,260,385 3,046,035 2,267,403 2,981,237 3,435,905 4,682,545 6,306,420 5,248,640 5,206,908

Net f inance costs (351,559) (287,527) (331,824) (264,649) (295,707) (267,834) (775,777) (639,086) (596,473) (563,542) (511,470)

Profits from associates/JCEs 5,586 192,413 5,155 110,716 (9,496) 74,729 218,476 197,999 115,871 65,233 150,209

Non-recurrent items 223,775 (150,756) (145,575) 73,853 (57,992) - (5,117) 73,019 (71,722) (57,992) -

Income before tax 1,398,246 2,916,231 2,788,141 2,965,955 1,904,208 2,788,132 2,873,487 4,314,477 5,754,096 4,692,340 4,845,646

Income tax expense (248,016) (787,792) (753,725) (877,052) (304,673) (724,914) (528,310) (1,035,808) (1,630,777) (1,029,588) (1,259,868)

Minority interests (4,591) 64,295 21,551 61,523 23,993 30,948 (20,807) 59,704 83,074 54,941 53,787

Net income 1,145,639 2,192,734 2,055,967 2,150,426 1,623,528 2,094,166 2,324,370 3,338,373 4,206,393 3,717,694 3,639,565

Recurring net income 921,864 2,343,490 2,201,542 2,095,036 1,667,022 2,094,166 2,329,487 3,265,354 4,296,578 3,761,188 3,639,565

EPS (HK$) 0.176 0.336 0.315 0.329 0.249 0.321 0.357 0.512 0.644 0.569 0.557

Recurring EPS (HK$) 0.141 0.359 0.337 0.321 0.255 0.321 0.357 0.501 0.658 0.576 0.557

DPS (HK$) 0.035 0.070 0.070 0.100 0.062 0.080 0.070 0.105 0.170 0.142 0.139

Depreciation and amortization 859,802 900,427 899,538 939,699 1,021,331 1,151,714 1,635,497 1,760,229 1,839,237 2,173,045 2,338,782

EBITDA 2,385,832 4,254,941 4,165,078 4,096,450 3,279,239 4,207,680 5,289,878 6,640,773 8,261,528 7,486,919 7,695,899

Blended cement and clinker ASP (HK$) 291 333 348 321 305 312 315 314 333 309 309

Cement and clinker vol. ('000 tonnes) 35,218 39,699 34,704 43,235 37,018 46,287 64,640 74,917 77,939 83,305 86,784

Cement and clinker gross profit (HK$/tonne) 66 117 119 103 83 96 74 93 110 90 86

Concrete ASP (HK$/tonne) 377 391 418 427 438 438 371 384 423 438 444

Concrete vol. ('000 m3) 6,898 8,307 7,372 8,548 7,256 8,736 13,407 15,205 15,920 15,992 17,031

Concrete gross profit (HK$/m3) 95 89 94 110 112 108 97 92 102 110 105

Growth Rates:

Revenue 17% 15% 18% 6% -5% 4% 9% 16% 11% 0% 5%

EBIT 34% 37% 114% -4% -30% -2% -30% 36% 35% -17% -1%

EBITDA 20% 29% 75% -4% -21% 3% -18% 26% 24% -9% 3%

Core net income 34% 43% 139% -11% -24% 0% -39% 40% 32% -12% -3%

Recurring EPS 34% 43% 138% -11% -24% 0% -39% 40% 31% -12% -3%

Margins and Ratios:

Gross margin 23.1% 32.7% 31.9% 30.8% 26.9% 29.4% 24.1% 28.5% 31.3% 28.3% 27.1%

Net margin 7.2% 13.8% 14.4% 11.6% 11.4% 11.3% 9.3% 10.9% 12.9% 11.3% 10.4%

EBIT margin 11.8% 19.2% 21.5% 17.4% 15.7% 16.3% 13.6% 16.0% 19.3% 16.0% 15.2%

EBITDA margin 18.6% 25.8% 27.5% 23.4% 22.7% 23.0% 20.9% 22.6% 25.3% 22.9% 22.4%

Effective tax rate 21.1% 25.7% 25.7% 30.3% 28.0% 15.5% 18.4% 24.4% 28.0% 21.7% 26.0%

Sources: Company data, CGIHK Research estimates

2015E20142013

19

Key financials

Figure 1: Cement Prices in Guangdong (RMB/tonne)

Sources: Digital Cement, CGIHK Research

Figure 2: Cement Prices in Guangxi (RMB/tonne)

Sources: Digital Cement, CGIHK Research

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2011 2012 2013 2014 2015

CR Cement (01313.HK)

Balance Sheet Statement of Cash Flow

(HK$'000, except for per share amount)

As at 31 Dec 2012 2013 2014 2015E 2016E Year ended 31 Dec 2012 2013 2014 2015E 2016E

Inventories 2,322,153 2,131,961 2,162,359 2,200,000 2,300,000 Profit before tax 2,873,487 4,314,477 5,754,096 4,692,340 4,845,646

Trade and other receivables 2,492,210 3,191,885 2,837,619 3,000,000 3,200,000 Depreciation & Amortization 1,646,183 1,827,176 2,020,732 2,173,045 2,338,782

Others 2,329,112 1,952,331 2,779,059 2,840,907 2,890,907 Others / adjustments 864,666 (606,791) (1,235,464) (457,290) (1,271,860)

Bank balances and cash 3,561,863 2,821,782 4,147,804 3,251,391 4,324,536 Net operating cash f low 4,304,718 5,121,087 6,858,842 6,175,398 5,862,569

Total current assets 10,705,338 10,097,959 11,926,841 11,292,298 12,715,443

Capex (3,218,917) (2,900,435) (3,206,491) (4,600,000) (2,200,000)

PPE, net 31,552,919 32,526,564 33,271,505 34,744,866 34,616,084 Others (1,280,630) (416,484) (1,350,709) (180,000) (160,000)

Prepaid lease payments 2,510,484 2,752,320 2,787,164 2,887,164 2,987,164 Net investing cash f low (4,499,547) (3,316,919) (4,557,200) (4,780,000) (2,360,000)

Others 7,390,390 8,802,827 9,551,577 9,696,810 9,907,019

Total non-current assets 41,453,793 44,081,711 45,610,246 47,328,840 47,510,267 Change in debt (2,267,134) (1,766,881) (159,960) (1,181,212) (1,500,000)

Dividends (717,118) (456,348) (684,522) (1,110,599) (929,423)

Total assets 52,159,131 54,179,670 57,537,087 58,621,138 60,225,710 Others 3,004,417 (419,272) (127,163) - -

Net f inancing cash f low 20,165 (2,642,501) (971,645) (2,291,811) (2,429,423)

Trade payables 3,386,392 3,246,173 2,800,119 3,000,000 3,200,000

Other payables 4,211,572 4,365,452 4,670,708 4,500,000 4,600,000 Increase / Decrease in cash (175,976) (740,081) 1,326,022 (896,413) 1,073,145

Bank and other borrow ings 7,607,433 6,171,482 4,728,905 4,000,000 3,500,000 Net cash/(debt) (18,646,886) (17,621,230) (16,136,072) (15,851,273) (13,278,128)

Others 1,572,925 614,997 930,763 569,750 684,890

Total current liabilities 16,778,322 14,398,104 13,130,495 12,069,750 11,984,890

Finance Ratios

Bank and other borrow ings 10,169,739 11,169,690 12,452,307 12,000,000 11,000,000

Others 3,252,870 3,250,125 3,239,137 3,232,664 3,232,664 2012 2013 2014 2015E 2016E

Total non-current liabilities 13,422,609 14,419,815 15,691,444 15,232,664 14,232,664 Valuation

PE(x) 14.3 10.2 7.8 8.9 9.2

Total liabilities 30,200,931 28,817,919 28,821,939 27,302,414 26,217,554 EPS grow th (%) (39.4) 40.2 31.3 (12.5) (3.2)

Yield (%) 1.4 2.1 3.3 2.8 2.7

Shareholders' equity 21,375,665 24,820,854 28,179,873 30,838,391 33,581,609 PEG (x) -0.36 0.25 0.25 -0.71 -2.84

Minority interests 582,535 540,897 535,275 480,334 426,547 EV/EBITDA (x) 9.8 7.8 6.2 6.9 6.7

PB(x) 1.6 1.3 1.2 1.1 1.0

Operational

Revenue grow th (%) 9 16 11 0 5

Gross margin (%) 24.1 28.5 31.3 28.3 27.1

Net profit margin (%) 9.3 10.9 12.9 11.3 10.4

Days receivables 32 35 34 33 33

Days payables 65 58 49 45 45

Days inventories 44 39 35 34 33

Current ratio (x) 0.6 0.7 0.9 0.9 1.1

Quick ratio (x) 0.4 0.4 0.5 0.5 0.6

Asset/Equity (x) 2.4 2.1 2.0 1.9 1.8

Net debt/equity (%) 85 69 56 51 39

EBITDA interest coverage (x) 6.8 10.4 13.9 13.3 15.0

Core ROE (%) 11.5 14.1 16.2 12.7 11.3

Sources: Company data, CGIHK Research estimates

20

Figure 3: CR Cement Rolling Forward PER Range


Figure 4: CR Cement Rolling Forward PBR Range


Figure 5: CR Cement EV/EBITDA Range


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BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :

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