Contents
Executive summary 3
We expect infrastructure investment (especially railway) in 2009-10 to be higher than
the government’s stated budget and market expectations, based on 1H09 data from
the Ministry of Railways (MOR), channel checks in the industry and the NDRC.
Overweight the sector.
3
Higher infrastructure investment = stronger earnings growth 5
Based on ytd figures, we expect transport infrastructure investment (especially for
railways) in 2009-10 to be higher than government guidance and market
expectation, which could support better earnings growth for the infrastructure
construction sector in 2009-10.
5
Surprisingly positive on infrastructure spending in FY09-10 5
Acceleration in rail spending – strongest theme in infrastructure 6
Roadway construction: mixed outlook 9
Relatively weak spot in water infrastructure 11
Solid growth and undemanding valuation 13
We recommend investors Overweight infrastructure construction in 2H09, given its
potential better-than-expected earnings growth and undemanding valuation. Current
sector valuations look attractive to us after the large de-rating ytd.
13
It’s time to step up 13
Stock picks 17
We initiate coverage of CRCC with a Buy rating and CCCC with a Hold
recommendation. We raise our EPS estimates and target price for CRGL, owing to
better-then-expected property recovery. Our order of preference: CRCC, CRGL,
CCCC.
17
Our top picks: CRCC and CRGL 17
Company profiles 20
China Rail Construction 21
China Railway Group 36
China Comms Construct 42