Comments:
• Railway construction expansion is within our expectations but the size is much bigger than our and market expectations. We have factored in faster railway construction due to the expansionary fiscal policies; but the MoR’s latest plan is much bigger than what we and the market expected. We previously assumed that railway construction investment will rise 58% to Rmb280bn in 2008, 25% to Rmb350bn in 2009 and 14% to Rmb400bn in 2010, pushing FY06-10 aggregate size to Rmb1.36 trillion, 10% greater than the previous 11th Five-Year Plan of Rmb1.25 trillion. Under the present circumstance, we raise our FY08~10 assumptions to Rmb320bn, Rmb500bn and Rmb600bn, an increase of 81%, 56% and 20% YoY respectively; accordingly FY06-10 aggregate size will be Rmb1.75 trillion (Table 1).
• Road/port construction plan in line. We previously assumed that road/port construction investment will be Rmb750bn in 2008, Rmb820bn in 2009 and Rmb900bn in 2010. We tentatively maintain our assumptions due to the narrow gap with MoC’s plan (Rmb800bn in 2008, Rmb1 trillion in 2009 and Rmb1 trillion in 2010).
• More earnings upside in the three listcos due to the new railway construction assumptions. We conduct a scenario analysis on FY09 earnings of the three listcos assuming FY09 railway construction investment is Rmb400bn, Rmb50bn or Rmb60bn. CRG and CRCC have a relatively big upside (Table 3). We will reexamine our earnings forecast on the three listcos after the MoR formally launches its investment plan and we communicate with the company managements.
Our worries:
• Sources of the mega investment: The MoR and the MoC released mega investment plans, especially MoR; whether there will be sufficient funds needs further observation. In addition, local governments may not have strong incentive as the road network is becoming mature, port demand slows down, and investment returns fall.
• Possible delays due to insufficient preparations. Construction of railway, road and ports is usually preceded by survey, designing and testing. Given the hasty investment plan and possibly insufficient preparations, construction may be postponed.
• Any capacity bottlenecks for CRG and CRCC? CRG and CRCC maintained their market share at 40~45% in 2004~07. But going ahead, their growth of income from railway construction may be slower than the growth of national railway construction investment as they may be short of hands and suffer capacity bottlenecks.
 kN2e69RL.zip (7.39 KB)
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发表于 2008-11-13 11:35
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