GUANGSHEN Railway operates the single line between Guangzhou and Shenzhen. The stock was listed on the exchange in May. Operating performance for the first five months of this year is within Warburg's expectations. Although the number of passengers declined year-on-year, as expected, freight volume showed modest growth. Freight tariffs were raised 18.9 per cent from April 1 and overall revenues and margin in the five months to May are expected to have kept to last year's levels. Both passenger and freight volume are expected to improve in the second half as the total number of high-speed trains is scheduled to increase to 19 pairs by year-end from the current four. The opening of services between Hong Kong and Beijing in September will further improve business in the run-up to the 1997 handover. It is now trading at a price-earnings discount to the Hong Kong market of 25 per cent for 1996 and an estimated 11 per cent for 1997. It commands only a small premium to the H-share market despite superior fundamentals. While earnings growth in the medium term is likely to be a moderate 8 to 10 per cent in Hong Kong dollar terms, its strong operating cash flow, moderate capital expenditure and high earnings certainty relative to similar companies warrants a rating in line with the Hong Kong market.