New | Time to buy railway stocks in China with CRRC a top pick
Railway stocks have reached their historical means in valuation, analysts say
With China’s railway network under expansion, service density rising and consolidation in the industry poised to benefit the railway sector as a whole, analysts said locomotive giant CRRC is a top pick for the sector in the weeks ahead.
Nomura upgraded Zhuzhou CSR Times Electric, China Railway Group, and China Railway Construction Corp from “Neutral” to “Buy” in a report issued on Thursday.
“Their forward price earnings ratios have corrected 35-45 per cent since April 2015 and are now below or in line with global peer averages and their historical mean averages. And their 2016 financial year PEG ratios are around or below one. We find such multiples attractive,” Patrick Xu, an industrial analyst wrote in the report.
“While we have quite a few stocks with substantial upside to target prices, we still prefer CRRC,”
he wrote.
CRRC stood out with its revenue visibility, its margin upside in the wake of merger synergies, its current low valuation, and potential higher-than-expected policy support from the central government, Xu said, who rated the stock as a “Buy”, and set a target price at HK$11.49.
CRRC, currently a Hong Kong and Shanghai dual listed company, came into being just this June, after a policy driven merger was completed between China’s then two biggest train makers, CSR and CNR. The shares of CRRC have been trading under CSR’s older tickers since June.