China Railway Sector:State Council passed new Medium and Long Term Railway Network Plan in principle

Railway development continued to gain strong policy support.

    According to cnstock.com, "Medium and Long Term Railway Network Plan" wasapproved in principle at the State Council Conference hosted by Premier Li Keqiang onJune 29th, aiming to support economic development through the construction oftransportation arteries. State Council believes railway is still underdeveloped in terms ofdensity and network integrity, especially in middle/western China, and calls forexpansion of railway infrastructure and building of integrated transportation network.

    Second medium-long term plan after 12 years; three highlights.

    In Jan 2004, the first medium-long term plan was approved by State Council, unveilingthe construction of a series of major railway projects, including Qinghai-Tibet railway. InOct 2008, NDRC approved "Medium and Long Term Railway Network Plan (revised in2008)", since then high speed railway (HSR) construction in China accelerated. Wethink three aspects in this new medium-long term plan are worth highlighting: 1) builda HSR network that are constituted by "Eight Horizontal, Eight Vertical" main channelsand supplementary intercity lines - transportation time among neighbouring large andmedium-sized cities/neighbouring cities within 1-4/0.5-2 hours, respectively; 2) furtherimprove normal railway network so that administrative regions at or above the countylevels are covered by rail transportation; 3) build integrated transportation centresbased on railway stations to connect with other means of transportation.

    Reiterate our positive view on railway and urban rail transit investment.

    We believe railway FAI will be significant in the 13th Five-Year Plan (FYP) period (2016-20), and forecast total railway FAI of Rmb4.1trn, 15% above that in 2011-15. Weexpect FAI in urban rail transit (mostly subways) to be the key growth driver, as weestimate average annual FAI of Rmb701bn in 2016-20E, 179% above the 2011-15level. NDRC and Ministry of Transport jointly issued Transport Network Plan forUrbanized Areas on Dec 10, 2015, making intercity railway construction a major part ofthe railway network construction.

    Stock that could benefit: Zhuzhou Times.

    We believe Zhuzhou Times could benefit from future railway construction projects. OurPT for Zhuzhou Times is Rmb15 (based on 2.5x 2016E PB); Neutral rating.