20150323-光大证券-Results_See_Remarkable_Growth,_CSR___CNR_Merger_and_Asset_Acquisition_Bring_new_Opportunities_11页_263kb

CSR Times (3898 HK) Summary

Core Content

CSR Times (3898 HK) is a leading Chinese manufacturer and integrator of train-borne electrical systems, with a broad range of products including electrical traction equipment, network control systems, power converters, train operation control systems, and more. The company's performance in 2014 was marked by significant growth in revenue and net profit, driven by the centralized settlement of EMU (Electric Multiple Units) contracts and the integration of new technologies.

Financial Highlights (2014)

• Revenue: Rmb12.676bn, up 43.1% YoY.
• Net Profit: Rmb2.395bn, up 63.2% YoY.
• EPS: Rmb2.04 per share.
• Final Dividend: Rmb0.4 per share.
• Gross Margin: Increased from 35.7% to 37.9%.
• Net Margin: Increased from 16.7% to 18.9%.

Revenue Growth by Segment

• EMU Products: Revenue increased by 105.6% YoY to Rmb4.76bn, in line with forecasts.
• Locomotives: Revenue grew 27.5% YoY to Rmb4.76bn, thanks to centralized settlement in the second half.
• Metropolitan Rail Transportation Equipment: Revenue rose by 26.4% YoY.
• Other Sectors: Marginal increases in revenue.

IGBT Development

• CSR Times introduced an 8-inch IGBT production line in mid-2014, which has been operating smoothly.
• 1700V subway-level IGBT products have started mass installation after passing safety tests.
• 3300V electrical locomotive-level products received positive feedback.
• 6500V EMU-level products are on trial.
• The 80-inch IGBT project is expected to generate profits in 2015 if mass production is successful.

Acquisition of SMD

• CSR Times acquired 100% stake in SMD, a leading underwater robot manufacturer and subsea trenching vendor.
• SMD has a global market share of 57% in underwater robots, 29% in subsea trenching, and 14% in subsea mining.
• The acquisition is expected to provide a first-mover advantage in the domestic underwater robot market and create synergies with existing electrical and control systems.

Strategic Implications

• The acquisition of SMD is seen as a way to diversify CSR Times' business and tap into new markets such as marine electrical systems.
• The company may benefit from the growth of underwater operations and the integration of SMD's technology into its existing product lines.

Merger of CSR and CNR

• The merger of CSR and CNR is expected to enhance CSR Times' market share and position it as a major platform for train electrical systems and control systems integration.
• CSR Times may experience asset restructurings and M&A opportunities, which could lift its valuation.

Investment Outlook

• Target Price: HK$56.0 as of 23 March 2015.
• Upside: 23.8% from the current share price of HK$45.25.
• Earnings Forecast:
  • 2015E Revenue: Rmb15.34bn
  • 2015E Profit: Rmb2.64bn
  • 2016E Revenue: Rmb17.47bn
  • 2016E Profit: Rmb3.12bn
• EPS Forecast:
  • 2015E: Rmb2.25
  • 2016E: Rmb2.66
• PE Ratio (2015E): Approximately 20x.

Market and Industry Position

• CSR Times is positioned to benefit from the rising demand for railway equipment, driven by the government's emphasis on railway development and increased investment.
• The "12th Five-Year Plan" and "13th Five-Year Plan" have led to the completion of major railway projects, with the expectation of doubling high-speed railway mileage by 2020.
• CSR Times is likely to see increased orders and revenue from the operation of new lines and the expansion of existing infrastructure.

Key Financial Indicators

• Free Float: 46.6%
• FF Market Cap: HK$24,767 million
• 12M Daily Turnover: HK$124.5 million
• 12M Volatility: 131.3%
• PEG FY15-17E: 1.1x
• RoE FY15-17E: 20.0%
• P/B FY15E: 3.0x
• Net Debt/Equity FY15E: NC (Not Covered)

Investment Recommendation

• Maintain "Buy": The company is expected to maintain its growth trajectory and benefit from synergies and new business opportunities.

Conclusion

CSR Times is well-positioned to benefit from the growth of the railway equipment sector in China, supported by the merger with CNR, the acquisition of SMD, and the development of new technologies such as IGBT. The company's strong financial performance and strategic moves are expected to drive further growth and increase its market valuation.