China Infrastructure and TransportationFY15Results preview

China railway infrastructure names have, on average, underperformed the HSI index (HSI: -13.3% vs. railwaynames: -17.8%), since the beginning of this year, pressured amid anticipations of domestic railway FAI slowdownand stretched balance sheets. Overall, railway names still achieved positive earnings growth in FY15, stimulatedby healthy top-line growth and stable margin performance.

    China toll road operators’ earnings performance in FY15was mixed. SZE has released earnings alert, expecting anearnings decline of 20-40% during FY15, dragged by the disposal of Yanguang, Yanpan and Yanba expressways,while the other three names, ZJE, JSE and Yuexiu Expressway, are projected to post double-digit growth.

    Railway Infrastructure.: High single-digit earnings growth expectable for 2015E

    Railway infrastructure EPC encountered headwinds during FY15, as domestic railwayFAI has come in lower than the initial target of RMB800bn and due to thelower-than-expected rollout of overseas projects. Thanks to the margin stability andbetter investment income performance, railway infrastructure players are forecastedto gain positive earnings growth in FY15.

    Railway rolling stocks: Delivery is expected to peak in FY15

    We see high single-digit bottom line growth for CRRC in FY15, driven by missedoverseas target contracts and headwinds from locomotives and freight wagons.Meanwhile for Zhuzhou CSR, the expected market share gain from the previoussuppliers to CNR has not materialised and orders from locomotives and freight werelackluster in FY15 as well.

    Toll Road: 2015E results to be eroded by disposals

    The disposal of expressway lines in Shenzhen is expected to erode the earnings of bothShenzhen Int’l and SZE (subsidiary of Shenzhen Int’l) in FY15 accordingly. Meanwhile,other names, such as JSE and Yuexiu Expressway, are seen to accomplish c.15-18% YoYgrowth in earnings in light of solid traffic volume growth in FY15. Furthermore, JSE isestimated to achieve c.20% YoY earnings growth in FY15, on the back of solid earningscontribution from Zhejiang Securities as well as stable traffic growth during the period.