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CRRC Corporation-H/A:Hold/Reduce:A-share placement detail

发布时间:2016-05-27    研究机构:香港上海汇丰

Sitting on a bigger pile of cash – After the market close, the company issued thedetails of A-share private placement to raised Rmb12bn of new equity. It will beissued to 5 investors, which include its parent company, CRRC Group (unlisted),private equity arms of China Development Bank, and funds management companiesof two Chinese commercial banks. The proposed issue price is Rmb8.66 but subjectto change if the A-share price falls more than 30%. The number of new A-sharesissued would be no more than 1,385m shares (about 5% of the current totaloutstanding shares on issue). The company stated that the intention for the equityraising is for working capital purpose and CRRC’s A-shares will resume trading on 30May. The proposal is subject to regulatory and shareholder approval.

In the supplementary document of the A-share placement proposal, the companyfurther stated its intention to shift its business model from a pure manufacturer tomanufacturing plus service model. We suspect this indicates CRRC Corp mayincrease its participation in PPP (public-private partnership) projects in railway orsubway segment. The company is also keen to expand its new business segment,especially for green energy products, and widen the application of its urban masstransit system technology. The company currently generates about 23% of revenuefrom the new business segment, including products in electric vehicle, wind turbine,super capacitors, etc. Over the medium to long term, we think the company mayrequire significant capital expenditure to increase the business scale in its newbusiness segment.

Lower TP to reflect near-term uncertainty on business development – We increasethe WACC in our DCF model to 9.96% versus 8.66% previously. This is to reflect thecompany’s intention to keep a low-geared balance sheet and uncertainty on futurebusiness development. H/A share TPs lowered to HKD8.40 and Rmb7.40 respectively;maintain Hold/Reduce for H/A share. We prefer its major electrical component supplier,Zhuzhou CRRC Times Electric (3898 HK, HKD43.05, Buy, TP HKD60), to CRRC Corpdue to potential market share gains from ex-CNR factories and expansion in non-railwaybusiness through the application of their key technology.