CHINA_EQUIPMENT_RAILWAY_SECTOR-2012-09-26.pdf

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1、 DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect

2、the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH it is overly ambitious, in our view, since metro spending by Beijing, Shanghai and Guangzhou was only around 3-4% of their respective b

3、udgets during 2007-11. Aspiration versus the funding reality We estimate Rmb464 bn of available funding for MoRs 2012 railway capex (Figure 4). Beijings Rmb50 bn fiscal injection is far from enough for MoR to reach its targeted Rmb610 bn fixed asset investment (FAI). The central government seems rel

4、uctant to become a stop-gap for MoRs ever increasing funding needs, likely due to the material deterioration in MoRs return on asset (Figure 5) and incidences of corruption within the system, in our view. Policy rhetoric is not the magic potion Railway investment declined 0.3% in July and 4.5% in Au

5、gust MoM despite the investment target having been raised twice since June. Trading at 13x 2012E consensus earnings, we believe the additional benefit from policy rhetoric on valuation multiple is limited, and the downward revision in earnings will be the main headwind driving the stock performance.

6、 Our 2012/13 earnings estimates are on average 18%/14% lower than those of consensus. We initiate coverage on CNR with NEUTRAL, and CSR and Times Electric with UNDERPERFORM ratings with target prices of Rmb3.40, HK$4.00, and HK$15.10, based on 10x, 11x and 11x 2013E earnings multiples, respectively,

7、 implying 2%, 21%, and 29% potential downside from last close, respectively. Risks include a worse-than-expected traffic increase on HSRs or slower-than-expected HSR construction resulting in lower- than-expected MU demand, slower-than-expected metro development resulting in lower- than-expected met

8、ro car demand. 24 September 2012 China Equipment Railway Sector 4 Sector valuation matrix Figure 7: Valuation comparison table P/E EV/EBITDA Company Ticker CRY Price Rating TP Up/Down 2012 2013 2012 2013 CSR Corp 1766.HK HK$ 5.08 U 4.0 -21% 16.6 14.3 8.7 7.5 China CNR Corporation 601299.SS Rmb 3.46

9、N 3.4 -2% 13.6 10.3 8.7 7.2 CSR Times Electric 3898.HK HK$ 21.35 U 15.1 -29% 17.8 15.5 13.3 11.4 China Railway Construction 1186.HK HK$ 6.73 NR NR n.a. 8.8 8.1 3.9 3.7 China Railway Group 0390.HK HK$ 3.37 NR NR n.a. 8.8 7.9 7.3 6.9 China Comm. Construction Co Ltd 1800.HK HK$ 6.37 NR NR n.a. 6.8 6.1

10、5.8 5.3 China State Construction 3311.HK HK$ 8.79 NR NR n.a. 15.5 12.4 14.3 11.7 Zoomlion (H) 1157.HK HK$ 8.79 U 8.5 -3% 10.1 8.9 6.7 5.1 Sany Heavy Industry 600031.SS Rmb 8.96 U 8.5 -5% 9.8 8.3 7.4 5.6 Lonking Holdings 3339.HK HK$ 1.31 N 1.8 37% 8.4 6.2 5.2 4.2 Liugong 000528.SZ Rmb 8.29 U 8.0 -3%

11、16.3 14.7 14.9 13.0 Shanghai Electric 2727.HK HK$ 3.05 R NR n.a. 9.3 8.6 6.1 5.6 Dongfang Electric Corp 1072.HK HK$ 11.14 N 15.0 35% 6.6 6.7 5.5 4.9 Harbin Power Equipment 1133.HK HK$ 6.44 O 8.2 27% 5.5 5.1 7.2 6.9 Siemens SIEGn.DE 79.15 O 88 11% 11.3 11.7 8.9 7.4 Alstom ALSO.PA 29.26 N 27 -8% 11.8

12、9.8 7.7 6.7 Caterpillar Inc. CAT US$ 92 O 117 28% 9.6 8.7 7.8 7.1 General Electric GE US$ 22.53 O 22 -2% 14.7 13.2 7.9 6.8 Average 11.2 9.8 8.2 7.0 Market cap P/B EBIT margin EV / sales ROE Local CRY US$ 2012 2013 2012 2013 2012 2013 2012 2013 CSR Corp 60,147 7,758 1.7 1.6 7% 7% 0.8 0.7 10 11 China

13、CNR Corporation 28,718 4,555 1.1 1.0 5% 6% 0.6 0.6 8 9 CSR Times Electric 23,149 2,986 3.1 2.7 17% 17% 2.5 2.2 18 18 China Railway Construction 82,593 10,653 0.9 0.9 3% 3% 0.2 0.2 11 11 China Railway Group 71,800 9,261 0.8 0.7 3% 3% 0.3 0.3 9 9 China Comm. Construction Co Ltd 94,881 12,237 1.0 0.9 6

14、% 6% 0.5 0.5 16 15 China State Construction 30,460 3,929 2.6 2.3 9% 10% 1.5 1.3 19 20 Zoomlion (H) 67,695 8,731 1.4 1.3 17% 17% 1.2 0.9 14 14 Sany Heavy Industry 68,040 10,791 2.7 2.1 19% 18% 1.6 1.2 28 26 Lonking Holdings 5,607 723 0.7 0.7 11% 12% 0.8 0.6 9 11 Liugong 9,328 1,479 1.0 0.9 5% 5% 1.0

15、0.9 6 6 Shanghai Electric 38,761 4,999 1.0 0.9 7% 8% 0.6 0.5 11 11 Dongfang Electric Corp 22,323 2,879 1.1 1.0 6% 7% 0.5 0.5 17 15 Harbin Power Equipment 8,867 1,144 0.6 0.6 6% 6% 0.6 0.6 11 11 Siemens 69,102 89,687 2.3 2.0 9% 9% 1.1 1.0 15 17 Alstom 8,690 11,278 2.0 1.7 5% 7% 0.7 0.6 17 18 Caterpil

16、lar Inc. 61,086 61,086 3.4 2.6 14% 14% 1.4 1.2 38 32 General Electric 238,615 238,615 1.9 1.9 12% 14% 1.1 1.0 13 14 Average 1.6 1.4 9.0% 9.4% 0.9 0.8 15 15 Source: Company data, Credit Suisse estimates, I/B/E/S for not-rated companies 24 September 2012 China Equipment Railway Sector 5 Table of conte

17、nts Focus charts and table 2 Rolling in the deep 3 MU demand enters a soft patch 3 Metro: Solid growth but let us not get carried away 3 Aspiration versus the funding reality 3 Policy rhetoric is not the magic potion 3 Sector valuation matrix 4 Table of contents 5 MU demand enters a soft patch 6 Our

18、 MU demand estimate framework 7 Widening MU supply-demand gap 8 Declining MU demand on new HSR lines 10 MU demand from increasing traffic 11 Putting everything together 14 MU orders to be delayed to next year 15 Metro: Solid growth but lets not get carried away 17 Rapid development but still a long

19、way to go 17 Funding will be the main obstacle 20 Aspiration versus the funding reality 22 MoRs Rmb100 bn+ funding gap in 2012 23 Beijing, we have a problem 27 Policy rhetoric not the magic potion 30 High probability to miss FY12 investment target 30 Valuation 31 Risks 34 CSR Corporation Ltd. (1766.

20、HK / 1766 HK) 35 Chinas leading train maker 35 Focus charts and tables 36 China CNR Corporation Ltd. (601299.SS / 601299 CH) 41 Margins set to improve 41 Focus charts and tables 42 Zhuzhou CSR Times Electric Co.Ltd. (3898.HK / 3898 HK) 47 Engine of the train 47 Focus charts and tables 48 Appendix I:

21、 Line-by-line MU demand estimate 53 Appendix II: Rolling stock forecasts 55 Appendix III: Company financials and operating metrics comparison 57 24 September 2012 China Equipment Railway Sector 6 MU demand enters a soft patch Multiple units (MUs) are train sets running on high speed railways (or HSR

22、s, which refer to newly built high-speed passenger dedicated lines (PDLs) with an average speed of 250 km/hour or higher in addition to upgraded conventional railways with an average speed of 200 km/hour or higher). Typically, an MU set comprises eight units of cars and the longer version 16 cars. S

23、ince MUs have become an increasingly important source of the rolling stock companies revenues (Figure 8), in this section we focus on the supply and demand picture of MUs in China. Figure 8: CNRs and CSRs revenue mix Figure 9: What an MU looks like - 20 40 60 80 100 120 140 200620072008200920102011

24、Rmb bn LocomotivePassenger coachFreight carMUMetro Source: Company data, Credit Suisse Source: Wikipedia As shown in Figure 10, we forecast 19% and 3% YoY declines in MU demand for 2012 and 2013 respectively, based on (1) excess supply of MUs for completed HSRs according to our line-by-line supply d

25、emand analysis, (2) lower MU density on newly constructed lines as more HSRs will be built in areas with less passenger traffic and (3) 10% growth in MU demand on the four vertical and four horizontal/intercity HSRs per annum driven by increasing traffic (but we see potential downside as the load fa

26、ctors are mostly below the 80% cut-off for adding new trains). Figure 10: MU demand forecast Figure 11: MU fleet forecast 720 688 1,157 1,843 2,384 1,941 1,886 1,857 2,350 -4% 68% 59% 29% -19% -3% -2% 27% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% - 500 1,000 1,500 2,000 2,500 3,000 200720082

27、00920102011 2012E 2013E 2014E 2015E YoY growth MU Demand (unit) MU demandMU Demand YoY 720 1,408 2,565 4,408 6,792 8,733 10,619 12,476 14,826 96% 82% 72% 54% 29%22%17% 19% 0% 20% 40% 60% 80% 100% 120% - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 2007 2008 2009 2010 2011 2012E2013E2014E2015E

28、 YoY growth MU Fleet (unit) MU FleetMU Fleet YoY Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates 24 September 2012 China Equipment Railway Sector 7 Our MU demand estimate framework We forecast MU demand by incorporating the length of the HSR, the average s

29、peed of the train and departure frequencies. Using a 1,000 km HSR as an example, if the average train speed is 200 km/hour, it would take 11.6 hours for an MU to make a round trip, including the 10-hour traveling time and 1.6 hours/1,000 km time for maintenance (Figure 12). Assuming MUs depart every

30、 10 minutes on this line, we calculate it will take 70 train sets (11.6 hours divide by 10 minutes) to meet the schedule. Adding 10% contingency buffer, this lines demand for train sets is 77. Figure 12: MU maintenance schedule Distance (km) Maintenance time (hours) Level I 3,000 1.5 Level II 30,000

31、 4 Level III 120,000 26 Level IV 240,000 26 Level V 480,000 288 Maintenance hours/1,000 km 1.56 Source: Company data, Credit Suisse estimates We have back tested our method on Tokaido HSR, Beijing-Shanghai HSR and Taiwan HSR as shown in Figure 13 and found that our calculation works reasonably well

32、with variance against actuals ranging between -5% and 6%. Figure 13: Train set estimates versus actuals First Train sets Number departure Last Rush demand Length of time departure Average hour (for both Difference High Speed Railway (km) departures (one dir) time travel time interval directions) Act

33、ual (E-A) Tokaido Shinkansen 552.6 336 5:30 0:00 2:30 00:03:18 141 133 6% Taiwan 345 61 6:30 23:00 2:00 0:13 29 30 -5% Beijing-Shanghai HSR 1318 75 6:53 18:40 5:54 0:09 107 103 4% Source: Company data, Credit Suisse estimates Methodology for train frequency estimates An important input for estimatin

34、g train set demand is the frequency of train departures required on the line. We use a 10-minute interval for main North-South HSRs (in line with the train schedule on the Beijing-Shanghai HSR), and a 17-minute interval for main East- West HSRs given the east-west passenger traffic has historically

35、been less than 60% of the north-south traffic (Figure 23). For intercity HSRs, we estimate the departure interval based on the size of population of the major cities along the line and the polynomial correlation between the population and train schedule as shown in Figure 14. 24 September 2012 China

36、 Equipment Railway Sector 8 Figure 14: Intercity HSR departure frequency vs. population Figure 15: Estimated train departure frequency vs. actual (intercity HSRs) Shanghai - Nanjing Nanchang - Jiujiang Shanghai - Hangzhou Changchun - Jilin Sanya - Haikou Guangzhou - Zhuhai Beijing - Tianjin y = 0.02

37、1x2- 2.2787x + 72.201 R = 0.8998 - 10 20 30 40 50 60 70 80 - 10 20 30 40 50 60 70 Train interval (minute) Population (mn) - 10 20 30 40 50 60 70 80 90 100 Shanghai - Nanjing Nanchang - Jiujiang Shanghai - Hangzhou Changchun - Jilin Sanya - Haikou Guangzhou - Zhuhai Beijing - Tianjin Estimated Interv

38、al (minutes)Actual Interval (minutes) Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Widening MU supply-demand gap Using our demand estimate framework, we have analysed Chinas MU supply versus demand and found that excess supply has widened (Figure 16 and

39、 Figure 17), most likely due to delayed HSR construction and slower-than-expected passenger traffic growth without the corresponding slowdown in rolling stock orders. Figure 16: MU demand vs. supply (set) Figure 17: Excess MU supply (set) 90 151151151151 0 25 128 246 394 90 176 285 447 652 0 100 200

40、 300 400 500 600 700 20072008200920102011 MU demand cum (all new HSR) MU demand cum (conventional upgrades) MU sets (MoR) 25 78 56 116 0 25 62 32 61 0 0 0 0 6 44 57 0 50 100 150 200 250 2008200920102011 Sets Annual MU sales breakdown HSR demand from new linesHSR demand from increasing schedule Upgra

41、ded conventional lineExcess Source:MoR, Credit Suisse Source: MoR, Credit Suisse Demand: MU demand is the number of MUs required to provide the HSR service per the operators schedule. We have calculated MU demand on a line-by-line basis and estimate that 394 sets are required for the HSR lines const

42、ructed prior to year-end 2011 (Figure 16 and Figure 18). Adding 151 MU sets required for the upgraded conventional lines, we reach total MU demand estimate of 545 sets by YE11. We note that dispatching MUs within a network rather than on a line-by-line basis allows more flexible usage and hence a le

43、ss number of trains; our simple MU demand estimate fails to capture this factor. MU supply is simply the number of MUs owned by a railway operator (MoR in the case of China). As at year-end 2011 MoR had 652 MU sets in operation, 107 sets or 20% higher than our demand estimate, suggesting over-supply

44、. 24 September 2012 China Equipment Railway Sector 9 Figure 18: 2011 MU demand estimate for HSR lines MU (sets) Train Grade Construction including 10% Average interval HSR lines Length (km/hr) start COD contingency speed (minutes) Qinhuangdao-Shenyang 404 200 (250) 1 Jan 1999 12 Oct 2003 0 150 0 Hef

45、ei-Nanjing 166 200 (250) 11 June 2005 18 Apr 2008 6 150 30 Beijing-Tianjin 120 350 1 July 2005 1 Aug 2008 10 250 9 Qingdao-Jinan 363 200 (250) 28 Jan 2007 24 Dec 2008 12 150 32 Hefei-Wuhan 352 250 1 Aug 2005 1 Apr 2009 13 150 30 Shijiazhuang-Taiyuan 190 250 11 June 2005 1 Apr 2009 3 150 68 Hangzhou-

46、Fuzhou-Shenzhen 970 200 (250-300) 1 Aug2005 28 Sep 2009 105 150 10 Wuhan-Guangzhou 1037.5 350 1 June 2005 26 Dec 2009 69 250 11 Zhengzhou-Xian 457 350 1 Sep 2005 28 Jan 2010 13 200 30 Chendu-Chongqing 315 200 1 Oct 2010 1 May 2010 5 150 67 Nanjing-Shanghai 300 350 1 July 2008 1 Jul 2010 23 200 12 Na

47、nchang-Jiujiang 131 250 28 June 2007 10 Sep 2010 2 150 65 Shanghai-Hangzhou 169 350 26 Feb 2009 26 Oct 2010 9 200 17 Changchun-Jilin 108 250 13 May 2007 30 Dec 2010 3 150 37 Haikou-Sanya 308 250 29 Sep 2007 30 Dec 2010 5 150 65 Guangzhou-Zhuhai 116 200 18 Dec 2005 7 Jan 2011 4 150 31 Beijing-Shangha

48、i 1318 350 18 Apr 2008 30 Jun 2011 107 250 9.0 Guangzhou-Shenzhen 102 300 20 Aug 2008 26 Dec 2011 5 200 17 Total 6,927 394 Source: Company data, Credit Suisse estimates A discussion on MU density We are cognizant of the fact that Chinas MU density at 0.07 MU sets/km (or 0.7 unit/km) is low compared

49、with that of developed peers (Figure 19). But does it imply that Chinas MU density would continue to increase due to this fact alone? We believe not. In our view, comparing density without taking into consideration operating factors such as speed and frequency of train departures is meaningless. For example, on Japans Tokaido Shinkansen, a train departs every three to four minutes. The high speed railway systems in Korea and Taiwan send out a train every 1