00390 Overview

• China's Railway Expansion Plans: China State Railway Group (CRC) intends to launch over 2,000 km of new railway lines and aims for infrastructure investments to reach RMB520 billion, supported by a positive outlook from JPMorgan on the 15th Five-Year Plan.

• Investment Performance: CRC has consistently exceeded its annual new line targets by approximately 20% for four years, with expectations of continued strong performance until 2026 and beyond.

• Stock Market Insights: JPMorgan noted the strong performance of CRRC and TIMES ELECTRIC stocks, predicting better opportunities for these companies in the current year.

• Profit Margin Resilience: Despite a normalization in revenue growth, CHINA RAILWAY is expected to maintain profit margins through a shift to high-value national projects and growth in overseas orders.

• UBS Infrastructure Outlook: UBS believes that infrastructure will continue to be a stabilizing factor for China's economy amid external uncertainties and weak domestic demand, with growth expected to be more structural than broad-based.

• Forecast Adjustments: The firm anticipates easing growth pressures as property conditions stabilize and fiscal support improves, shifting its valuation basis from 2025 to 2026.

• Stock Ratings and Target Prices: UBS maintains a Buy rating for CHINA RAILWAY and CHINA COMM CONS, while rating CHINA RAIL CONS as Neutral, with adjusted target prices reflecting their growth expectations.

• Investment Preferences: UBS favors CHINA RAILWAY due to its mining business exposure, which provides better earnings and valuation leverage compared to other infrastructure stocks.

• Stock Performance: China Railway's stock (00390.HK) decreased by 0.243%, while its A-share counterpart (601390.SH) increased by 0.525%.

• Short Selling Activity: The company experienced short selling amounting to $12.06 million, with a short selling ratio of 9.454%.

• New Contracts Announcement: In the third quarter of 2025, China Railway reported a new contract amount of RMB476.23 billion.

• Year-to-Date Growth: For the first three quarters of 2025, the company's new contract amount rose by 3.7% year-on-year to RMB1.58 trillion, with domestic contracts increasing by 1% and overseas contracts by 35.2%.

• Market Performance: The Hang Seng Index (HSI) fell by 76 points (0.3%) to 26,752, while the Hang Seng Tech Index (HSTI) dropped 42 points (0.7%) to 6,471. The Hang Seng China Enterprises Index (HSCEI) saw a slight increase of 6 points (0.1%) to 9,530, with a total market turnover of $386.82 billion.

• Active Heavyweights: Notable stock movements included HKEX rising by 2.7% to $456.8, while Alibaba and Xiaomi fell by 2.4% and 0.9%, respectively. Hang Seng Bank surged by 25.9% to $149.8, reaching a new high, while Sino Biopharma and HSBC Holdings experienced significant declines of 7.5% and 6%, respectively.

CHINA RAILWAY Financial Performance

• Revenue and Profit Decline: In the first half of 2025, CHINA RAILWAY experienced a 5.9% year-over-year decline in total revenue and a significant 17.2% drop in net profit, as reported by Huatai Securities.
• Second Quarter Results: For the second quarter of 2025, revenue fell by 5.6% year-over-year, while net profit decreased by 14.7%, missing broker expectations. This decline was attributed to increased interest expenses on capitalized assets and a reduction in investment and financing income from infrastructure projects.

Order Growth and Future Outlook

• New Orders Increase: Management reported a 20% year-over-year growth in new orders signed during the second quarter of 2025, indicating a recovery from the decline seen in the first quarter.
• Future Projections: Huatai Securities anticipates that the improved order situation and accelerated issuance of special bonds in the second half of 2025 will enhance order implementation and execution, maintaining an Overweight rating for the stock.

Profit Forecast Adjustments

• Revised Profit Estimates: Due to increased competition in the construction industry and potential profit margin declines, Huatai Securities has lowered its net profit forecasts for CHINA RAILWAY for 2025-2027 by 8.54%, 13.98%, and 17.77%, projecting net profits of RMB 23.8 billion, RMB 22.9 billion, and RMB 22.6 billion respectively.
• Target Price Adjustment: Despite the challenges, the broker raised the target price for CHINA RAILWAY from $5.34 to $5.50, citing the company's valuable copper mine resources and improved asset value.

• Morgan Stanley's Report on China's Construction Sector: The report anticipates weak results for major Chinese engineering and construction companies in Q2 2025, with a continued decline expected into the second half of the year due to local government fiscal pressures.

• Profit Forecast Adjustments: Morgan Stanley has lowered its net profit forecasts for CHINA RAILWAY and CHINA CONS ENGINEERING by 18-30%, resulting in a downgrade of CHINA RAILWAY's H-share rating from Overweight to Equalweight and a reduced target price.