Sector Report - chinastock.com.hk€¦ · Sector Report March 2, 2017 Kelly Zou—Analyst double the investment estimated for 2010 (852) ... investment in railways and roads to remain

1

Sector Report

March 2, 2017

Kelly Zou—Analyst

(852) 3698-6319

[email protected]

Wong Chi Man—Head of Research

(852) 3698-6317

[email protected]

Infrastructure round 1: Be selective, focusing on stocks with exposure to faster-growing segments and regions Infrastructure investment to remain crucial for stable GDP growth. Infrastructure FAI grew 15.8% YoY in 2016. We expect infrastructure fixed-asset investment (FAI) to grow

>15% YoY in 2017.This is because we expect real estate and manufacturing FAI growth

to be tamed in 2017 and China has to keep stable GDP growth. We expect real estate FAI to be subdued in 2017, since the central government will stick to its tightening policy in the property market in 2017. We also expect manufacturing FAI growth to be constrained, since 1) various industries will continue supply-side reforms, and 2) the private sector in manufacturing lacks incentives to invest in new capacity amid the weak demand outlook.

Utility and environment-related infrastructure investment to see faster growth. We expect infrastructure FAI growth to come from utilities, environmental and other urbanization infrastructure development. We expect utilities and environment-related infrastructure investment to grow 15-20% p.a. in the 13th FYP. We expect investment in wind, nuclear power, the grid network and environment-related development to drive infrastructure investment growth. We expect transport infrastructure to grow at a high single-digit growth rate in the 13th FYP. We expect large-scale transport infrastructure investment in railways and roads to remain largely flat, and urban transit network and airport investment growth to grow at a high double-digit growth rate p.a. in the 13th FYP.

Faster infrastructure FAI growth expected in the midwest and regions related to OBOR. Some companies may also enjoy higher business growth thanks to regional exposure. Our data shows that FAI in the midwest and regions related to OBOR will grow faster than that of other regions. We identified Xinjiang and a few other provinces/cities related to OBOR as likely to have faster FAI growth than other regions in 2017. Investment growth in these regions should be driven by 1) local infrastructure development and 2) infrastructure development related to OBOR.

Overseas growth opportunities to come from power and transport infrastructure development. We expect China to push the OBOR initiative even harder in 2017, given its aim of expanding trade and capital links with APEC countries, diversifying access to natural resources and ensuring national security. The investment will continue to focus on infrastructure development. Most of the OBOR countries still have underdeveloped transport and power systems, which constrains their economic development. China’s construction contract wins from OBOR countries in 2016 rose 36% YoY, and revenue generated from these contracts grew 9.7% YoY in 2016. A report from the Asian Development Bank (ADB) indicates that total infrastructure investment needs (climate-adjusted estimate) will be US$26tn in 2016-2030, or US$1.7tn p.a., which is more than double the investment estimated for 2010-2020. The report projects that average annual investment in power and transport in developing Asia in 2016-2030 will be >2.5x the investment it estimated for 2010-2020. We believe the OBOR Conference in Beijing in May 2017 will attract more investors to revisit this potential.

Be selective, focusing on stocks with exposure to faster-growing segments and

regions. For the power sector, we focus on CMEC (1829 HK), Power Construction Corp

(601669 CH), China Gezhouba Group (600068 CH), China Nuclear Engineering (601611

CH), Shanghai Electric (2727 HK, 601727 CH), Dongfang Electric (1072 HK, 600875 CH),

NARI Tech (600406 CH) and XJ Electric (000400 CH), For the environment sector, we

focus on Beijing Enterprises Water (371 HK) and China Everbright International (257 HK).

For overseas business growth potential, we focus on CCC (1800 HK, 601800 CH), CMEC

(1829 HK), Power Construction Corp (601669 CH) and China Gezhouba Group (600068

CH).

China construction sector

2

Infrastructure to remain crucial to stability in GDP

growth

We believe the central government will continue to make infrastructure a key measure

for maintaining stable GDP growth. China’s real GDP grew 6.7% in 2016, down from

6.9% growth in 2015. Since real estate and manufacturing FAI will be subdued in 2017,

we expect infrastructure FAI in 2017 to grow more than last year’s level; otherwise, it

will be difficult for China’s GDP growth to remain at a stable level.

Infrastructure FAI grew 15.8% YoY in 2016, below the 17.0% YoY growth in 2015. We

expect infrastructure FAI in 2017 to grow more than 15% YoY. We expect real estate

FAI growth to be tamed in 2017, since the central government will stick to its tightening

policy in the property market in 2017. We expect manufacturing FAI growth to be likely

constrained, since 1) various industries will continue to carry out supply-side reforms,

and 2) the private sector in manufacturing lacks incentives to invest in new capacity

amid the weak demand outlook.

Sources: WIND Info, CGIS Research estimates

Figure 1: China’s real GDP growth Figure 2: China’s FAI growth by segment


12.7%

14.2%

9.7%9.4%

10.6%

9.5%

7.9% 7.8%7.3%

6.9% 6.7%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0%

5.0%

10.0%

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30.0%

35.0%

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45.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total FAI

Infrastructure FAI

Manufacturing FAI

Real estate FAI

3

Infrastructure investment growth hinges on PPP

project implementation

Infrastructure FAI used to rely on government-raised funds and debt financing. With de-

clining land sales and lackluster economic growth, governments face huge financial

pressure to maintain strong infrastructure investment growth. We believe governments

will increasingly rely on financing from the private sector to support infrastructure invest-

ment.

The central government started promoting public-private partnership (PPP) infrastructure

projects in 2015. At end-2016, the NDRC had released 11,260 projects, with total invest-

ment reaching RMB3.5tn, which was 6.9x the investment value of the first batch of PPP

projects the bureau released in May 2015. But progress is far from satisfactory. The

implementation rate for PPP projects rose from 20% in January 2016 to only 32% at end

-2016.

As infrastructure investment growth, and more importantly, stable GDP growth, hinges

on PPP project implementation, we expect mixed-ownership reform in infrastructure

development to accelerate in 2017. This would help improve the investment return of

infrastructure projects and push forward the implementation of PPP projects. The Cen-

tral Economic Work Conference, held in December 2016, highlighted that the focus in

2017 would be on mixed-ownership reform in the power, oil & gas, railway, civil aviation,

telecommunications and military sectors. This signals accelerating business and mixed-

ownership reform in infrastructure development to resolve funding issues. We need to

follow up on progress in mixed-ownership reform in these segments to help us deter-

mine whether the government can deliver even higher infrastructure FAI growth in 2017

than that in 2016.


Figure 3: Number and total investment of PPP projects Figure 4: Implementation rate of PPP projects


15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

Jan

-16

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-16

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Ap

r-1

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16

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No of projects Total contract value (Rmb trn, rhs)

4

Be selective on stock picks, favouring stocks with

exposure to the power and environment sectors

Railways

We expect rail to see only modest investment growth in the 13th FYP. The China Rail-

way Corporation (CRC) targets railway investment to reach RMB800bn in 2017, rough-

ly the same level of railway investment in 2016. The NDRC targets new line addition of

>28,000km in the 13th FYP, roughly the same level as in the 12th FYP. Railway invest-

ment growth will be driven by local governments’ investment in the development of the

intercity railway network by city clusters. We estimate new line addition of intercity rail-

ways will reach >6,000km in the 13th FYP. Including new line addition to intercity rail-

ways, we only expect ~5% railway investment growth per annum in the 13th FYP.

We estimate railway investment, including in the intercity railway network, to reach

over RMB4.4tn in the 13th FYP, up 24.3% over that in the 12th FYP. Total investment in

the national railway network will be largely flat at RMB3.5tn in the 13th FYP, as invest-

ment in intercity railways will be the main driver of railway investment growth.

Sources: NBS, CGIS Research estmates

Figure 5: Infrastructure investment breakdown

We recommend a selective approach to infrastructure-related stocks for their business

growth potential. As governments are facing difficulty funding infrastructure projects,

we see divergent growth prospects for different infrastructure segments. We think the

focus on infrastructure investment has shifted from large-scale transport infrastructure

development to infrastructure development in new energy, the grid network, environ-

mental protection and small-scale, urbanization-related infrastructure development.

Investment in transport infrastructure development grew at a CAGR of 11.9% in the

12th FYP. Infrastructure investment in the power and utilities segment grew at a CAGR

of 12.8% in the 12th FYP, while investment in environmental infrastructure develop-

ment grew at a CAGR of 20.0% in the same period. We believe the infrastructure in-

vestment focus will remain on utilities and environmental infrastructure development.

We expect investment in utilities and environmental infrastructure development to grow

15-20% per annum in the 13th FYP. We expect investment in transport infrastructure

development to grow at only a high single-digit growth rate. We expect large-scale

transportation infrastructure, such as railways and roads, to remain largely flat in the

13th FYP. We expect investment growth in transportation infrastructure to come from

urban transit networks and airport development.

Rmb bn 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Transport 567 709 886 1,122 1,300 1,570 2,327 2,788 2,777 3,088 3,633 4,298 4,897 5,363

Power and utility 381 553 729 826 909 1,049 1,355 1,459 1,466 1,667 1,963 2,292 2,662 2,974

Water conservancy, environment and other public facility 422 489 610 751 928 1,228 1,788 2,233 2,452 2,962 3,766 4,627 5,567 6,865

Total FAI 1,369 1,751 2,224 2,699 3,136 3,847 5,470 6,481 6,695 7,717 9,362 11,217 13,127 15,201

% YoY chg

Transport 25.1% 24.9% 26.7% 15.8% 20.8% 48.2% 19.8% -0.4% 11.2% 17.6% 18.3% 13.9% 9.5%

Power and utility 45.2% 31.9% 13.4% 10.0% 15.4% 29.1% 7.7% 0.5% 13.7% 17.7% 16.7% 16.2% 11.7%

Water conservancy, environment and other public facility 15.9% 24.7% 23.1% 23.6% 32.4% 45.6% 24.9% 9.8% 20.8% 27.2% 22.9% 20.3% 23.3%

Total FAI 27.8% 27.1% 21.3% 16.2% 22.7% 42.2% 18.5% 3.3% 15.3% 21.3% 19.8% 17.0% 15.8%

5

Roads and waterways

The MOT targets total investment of RMB1.8tn in roads and waterways in 2017 vs.

about RMB1.9tn in 2016. Its target is for road and waterway investment to reach

RMB8.3tn in the 13th FYP, up about 6% over the investment level in the 12th FYP.

Road infrastructure investment slowed down in the 12th FYP , growing at a CAGR of

7.5% compared to 15.9% in the 11th FYP. The MOT aims to add another 30,000km of

highways in the 13th FYP, vs. 49,400km in the 12th FYP. The growth will come from 1)

road development in rural areas and the midwest, and 2) road network formation in the

coastal and inland riverside areas. The road network expansion in midwestern areas,

like Xinjiang, Tibet and Sichuan, will also serve the purpose of connecting China with

neighbouring OBOR countries. This should be a priority for China in its efforts to push

the implementation of the OBOR initiative.

Investment in waterways is driven by the need to deepen the inland waterway network

and expand port capacity. Waterway investment slowed down in the 12th FYP, growing

at a CAGR of 4.5% in 2010-2015 vs. 11.2% in 2005-2010. We expect waterway invest-

ment to grow no more than 5% per annum in the 13th FYP. China aims to develop the

river-sea transportation network and multi-modal transportation to modernize its logis-

tics and transportation industries, which calls for the further development of inland wa-

terways and coastal ports. This should drive waterway investment growth.

Sources: CRC, China Association of Metros, CGIS Research estimates

Figure 6: Rail transportation investment

Urban transit network

Local governments are promoting the development of urban transit networks, which

serve the purpose of 1) reducing air pollution and traffic congestion, and 2) boosting

property values, with new lines connecting previously remote areas with city centres.

Industry association data suggests total mileage of urban transit networks will reach

7,500km by 2020, suggesting new line addition of more than 700km per annum in the

13th FYP, compared with average new line addition of 400km in the 12th FYP. Overall,

we expect new line addition for urban transit networks to grow 81.8% in the 13th FYP,

compared with new line addition in the 12th FYP. We forecast that total investment in

urban transit networks will grow 79.8% in the 13th FYP, reaching >RMB2.2tn. We esti-

mate that investment in urban transit networks will grow 15-20% p.a. in the 13th FYP.

New line addition (km) 2011 2012 2013 2014 2015 12th FYP 13th FYP

13th FYP vs.

12th FYP

Regular railway 531 1,507 2,472 5,360 5,942 15,811 15,053 -4.8%

High-speed railway 1,540 2,762 3,101 3,067 3,589 14,059 13,416 -4.6%

Intercity railway 0 0 0 0 0 0 6,055 na

Railway subtotal 2,071 4,268 5,573 8,427 9,531 29,870 34,524 15.6%

Urban transit network 200 400 538 196 827 2,161 3,928 81.8%

Investment (Rmb bn)

Regular railway 271 344 356 472 417 1,861 1,709 -8.2%

High-speed railway 323 313 308 337 406 1,688 1,791 6.1%

Inter-city railway 0 0 0 0 0 0 911 na

Railway subtotal 595 658 664 809 824 3,549 4,411 24.3%

Urban transit network 163 191 217 290 368 1,229 2,210 79.8%

6

Airports

China’s aviation market growth is facing capacity bottlenecks in airport development.

The Civil Aviation Administration of China (CAAC) has targeted the number of airports

for use in civil aviation to reach 260 by end-2020, suggesting an additional 50 airports

will be added to the system in 2016-2020. The CAAC built 35 airports in 2011-2015.

In addition, the State Council aims for all prefecture-level cities to have general avia-

tion airports or transport airports that can also be used as general aviation airports.

This means the number of general aviation airports could reach >500 by end-2020.


Figure 7: Road investment in China Figure 8: Waterway investment in China


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Figure 9: Airport capacity development in China

7

Grid network

The power sector investment focus has shifted from power generation to power trans-

mission and distribution. Investment growth in the power grid network should come

from the development of the power transmission and distribution network, or more im-

portantly, the power distribution network. Investment in the power distribution network

is required because of 1) the need to improve power supply quality and energy efficien-

cy, 2) rising urbanization, 3) changing power consumption patterns, and 4) power load

diversification.

Sources: NEA, CGIS Research estimates

Figure 10: China’s power generation capacity development plan

Installed capacity (GW) 11th FYP actual 12th FYP actual 13th FYP target

Coal-fired 710 993 1,100

Wind 30 131 210

Solar 0 42 110

Hydro power 216 297 340

Nuclear 11 27 58

Power generation 970 1,530 2,000

% CAGR

Coal-fired 6.9% 4.1%

Wind 34.3% 9.9%

Solar 168.7% 21.2%

Hydro power 8.2% 2.8%

Nuclear 19.7% 16.5%

Power generation 9.5% 5.5%

Power and utilities

We believe investment growth in China’s power sector will come from 1) the devel-

opment of clean energy to reduce air pollution, and 2) grid network development to

improve power consumption efficiency. Supply-side reform in a lot of end-user in-

dustries has led to an oversupply situation in the power-generation industry. The

central government’s target is for power-generation capacity to grow at a CAGR of

only 5.5% in the 13th FYP, vs. 9.5% in the 12th FYP. But we expect structural chang-

es in China’s energy consumption towards clean energy to accelerate in the 13th

FYP.

China’s target is for non-fossil fuel energy consumption to represent 15% of its total

energy consumption by 2020 and 20% of its energy consumption by 2030. China’s

non-fossil fuel energy consumption stood at 12% of total energy consumption in

2015, up from 9.4% at the end of 2010.

Other than the wind and solar sectors, we expect nuclear power investment to ex-

ceed market expectations. The central government’s target is for nuclear power

generation capacity to grow at a CAGR of 16.5% in the 13th FYP. But we expect

China to add more inland nuclear power generation capacity in 2017, which should

further boost nuclear power investment.

8

Environmental protection and water conservation

We expect investment in water conservation and environmental protection to sustain

its growth rate of 20% per annum in the 13th FYP, since China is facing serious air,

water and soil pollution, which endangers sustainable economic growth in the long

term. In the meantime, China still needs to develop better water conservation methods

to avoid flood disasters and water-supply shortages.

The State Council released the 13th FYP for environmental protection in Dec 2016. The

plan stipulates the central government’s goal to reduce air, water and soil pollution.

China aims to reduce water pollution so that more than 70% of the surface water will

reach Grade III or equivalent by 2020, compared to only 66% of the surface water

reaching this grade at present. In addition, the proportion of groundwater in the “very

bad” category is expected to decline from 15.7% in 2013 to around 15% by 2020. As

for soil pollution, the central government has asked for the quantification of the distribu-

tion and impact of polluted farmland by 2018. Its target is for the safe utilization rate of

previously polluted farmland to increase from 70.6% in 2015 to around 90% by 2020.

We expect investment in water conservation to grow more than 20% per annum in the

13th FYP. The 13th FYP calls for 1) further development of water conservation facili-

ties, 2) the improvement of flood prevention and drainage capacity in cities, and 3) the

strengthening of the water conservation infrastructure in rural areas for farmland irriga-

tion.

The NDRC and the National Energy Administration (NEA) have an “Action Plan” for the

development of the power distribution network in 2015-2020. This plan requires grid

companies to invest RMB300-340bn p.a. in 2015-2020 in the power distribution net-

work vs. investment of only RMB100-190bn p.a. in the 12th FYP. Overall, we expect

grid companies’ investment in the grid network, including power transmission and dis-

tribution, to grow >15% p.a. in the 13th FYP.

Sources: WIND Info, CGIS Research estimates Sources: NEA, CGIS Research estimates

Figure 11: Grid network investment

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Figure 12: Water conservancy and environment infrastructure investment

9

Be selective on stock picks, focusing on stocks with

exposure to midwestern and OBOR-related regions

Local governments released their 2017 FAI targets earlier this year. Based on compa-

ny location, we identify potential winners as companies that enjoy different levels of

business growth from their exposure to different governments’ FAI. We favour stocks in

regions with faster infrastructure growth, such as Xinjiang, Fujian, Guangdong, Guang-

xi, Guizhou, Yunnan and Tibet. Infrastructure FAI growth in these regions will be boost-

ed by 1) local infrastructure development, and 2) infrastructure development under the

OBOR initiative.

Figure 13: Local government fixed-asset investment growth target for 2017

Sources: CGIS Research estimates

2015 2016 2017E target Focusing areas

Beijing 8.3% 12.9% 12.9% Education, social housing, infrastructure projects to reduce air pollution and ease traffic congestion, water treatment, pension infrastructure, waste disposal

Tianjin 12.5% 12.0% 10.0% Transportation infrastructure for Bejing-Tianjin-Hebei city groups, highway, railway-sea multimode transportation,

Hebei 8.4% 9.0% 9.0% Grid network reform, social housing, transportation infrastructure for Beijing-Tianjin-Hebei city groups

Shanxi 13.9% 1.5% 5.0% New energy power generation development

Inner Mongolia -22.1% 12.0% 12.0% Railway, highway, aviation, water conservancy, municipal, energy, communication network

North China 2.6% 10.5% 9.2%

Liaoning -27.5% -64.1% 12.0% Petrochemical, railway, highway, grid network, water conservancy, power generation, airport

Jilin 12.0% 10.0% 8.0% Waterway, pipe line, railway, highway, airport, power transmission

Heilongjiang 3.6% 5.5% 7.0% Railway, highway, airport, urban transit, water treatment, water supply, waste treatment, airport

Northeast China -11.1% -24.2% 8.5%

Shanghai 5.6% 6.3% 6.0% Urban transit, road, airport, municipal development

Jiangsu 10.3% 6.8% 7.5% Railway, municipal development, new energy, port, aviation, waterway

Zhejiang 12.6% 8.2% 8.2% Environment protection projects, road, public transportation, pension infrastructure

Anhui 11.5% 11.7% 11.5% Highway, railway, waterway, water conservancy, grid network, new energy, communication

Fujian 17.2% 9.3% 15.0% Environment protection projects, railway, highway, urban transit, port, energy, water conservancy, communication, municipal project

Jiangxi 15.3% 11.4% 13.5% Highway, railway, airport, energy, grid network

Shandong 13.7% 8.4% 8.4% Urbanization, municipal, pipe line

East China 12.6% 8.3% 9.7%

Henan 15.8% 13.7% 12.0% Municipal project, waste treatment, public transportation

Hubei 15.9% 13.1% 15.0% Railway, highway, water conservancy, pipe line

Hunan 17.9% 13.8% 13.0% Road, social housing, pension infrastructure, communication network, grid network

Gunagdong 15.4% 10.0% 15.0% Public transportation, water conservancy, communication network, environment protection project, energy, municipal project, airport

Guangxi 17.2% 13.0% 13.0% Highway, railway, airport, water conservancy, grid network, social housing, municipal projects including water treatment, pipe line, urban transit

Hainan 10.9% 8.6% 10.0% Road, airport, energy, water conservancy, port, urbanization project

South Central China 16.2% 12.6% 13.5%

Chongqing 16.8% 12.1% 10.0% Urbanization project, railway, highway, airport, port,

Sichuan 9.5% 12.1% 10.0% Communication network, grid network, water conservancy, railway, airport, highway

Guizhou 21.3% 21.0% 18.0% Railway, road, airport, water conservancy, grid network

Yunnan 17.4% 19.8% 16.0% Railway, road, airport, energy, water conservancy, communication network

Tibet 21.2% 20.0% 20.0% Road, railway, water conservancy, grid network, communication network

Southwest China 14.7% 16.8% 12.8%

Shaanxi 8.1% 12.3% 10.0% Railway, road, communication network, grid network, water conservancy

Gansu 11.0% 10.5% 10.0% Railway， road, airport, water conserancy, grid network

Qinghai 12.2% 10.9% 10.0% Railway, road, airport, wind, solar new energy, wate conservancy, communication network

Ningxia 10.4% 10.7% 10.0% Railway, airport, energy, grid network

Xinjiang 14.5% -7.7% 50.0% Water conservancy, energy, grid network, road, railway, social housing

Northwest China 10.6% 5.7% 18.4%

10

Be selective on stock picks, focusing on stocks with

exposure to the OBOR power and transport sectors

The OBOR initiative underpins China’s goal of developing a new regional trade zone,

called the Free Trade Area of the Asia Pacific (FTAAP), between China and OBOR

countries. Considering a possible trade war with the US, we expect China to further

push OBOR in 2017 with the intention of expanding trade and capital links with APEC

countries, diversifying access to natural resources and ensuring national security.

Infrastructure investment is the priority for OBOR. China’s new construction contract

wins in the 61 OBOR countries reached US$126bn in 2016, up 36% YoY. Revenue

generated from these contracts reached US$76bn, up 9.7% YoY in 2016. Based on a

PWC report, the provisional numbers for 2016 see total new announced project value

in the OBOR region rising 2.1% to roughly US$400bn. Final numbers could see 2016

value rising by as much as 10%.

Figure 15: Total project dollar value in OBOR markets

Sources: PWC, CGIS Research estimates Sources: MOC, CGIS Research estimates

Figure 14: China’s contract wins and related sales from OBOR countries

We expect robust infrastructure investment to continue in OBOR regions. Asia is the

main destination for China’s investment in OBOR infrastructure. The latest Asian De-

velopment Bank (ADB) report on infrastructure development in developing Asian

countries, published on 28 February, projects that total investment needs for

transport, power, telecommunications, water supply and sanitation (climate-adjusted

estimates) are US$26tn in 2016-2030, or US$1.7tn p.a., which is more than double

the investment it estimated for the period 2010-2020.

The focus will be on the power and transport sectors, which represent 56% and 32%

of total infrastructure investment needs in Asia for the period 2016-2030, respectively.

Investment in power and transport is expected to grow faster than that in telecommu-

nications, water and sanitation in 2016-2030 (Fig 16).

3,987

92,640

69,260

8,158

126,030

75,970

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

No of new contract Contract wins (US$ m) Revenue (US$ m)

2015 2016

282.9

313.6

274.4

378.6393.0

401.3

200.0

250.0

300.0

350.0

400.0

450.0

2011 2012 2013 2014 2015 2016

11

The ADB forecasts that investment in transport infrastructure development will reach

US$557bn p.a. in 2016-2030, 2.5x the annual average investment level it estimated

for 2010-2020. The ADB report suggests road quality needs to be substantially im-

proved across each developing Asian country, most urgently in lower-income coun-

tries. The report suggests railway development in developing Asia is better than

road development, especially in Korea and China. The investment focus will shift to

rehabilitation, and better management and maintenance, which echoes our view of

the railway investment focus shifting to late-cycle operations, which we highlighted

in our latest report, Railway investment focus shifting to late-cycle operations, pub-

lished on 21 February 2017.

The ADB forecasts that average annual investment in power infrastructure develop-

ment will reach US$982bn in 2016-2030, 2.6x the average annual investment it esti-

mated for 2010-2020. The report says that power generation and transmission distri-

bution capacity in developing Asia is below that of other developing economies and

substantially below that of OECD countries. As for power-generation capacity, in

some developing Asian countries population growth is outpacing electricity capacity.

Even though some countries in southeast Asia, south Asia and the Pacific have

rapidly expanding electricity-generating capacity, the power-generation capacity per

capita is still well below the regional average. Power transmission and distribution

capacity is also underdeveloped in emerging Asia; as a result, developing Asia los-

es about 8% of generated electricity vs. only 6% in OECD countries.

Infrastructure investment in developing Asia will rely on the private sector. Based on

ADB’s research, power and road infrastructure projects provide higher IRR than

other infrastructure projects. Therefore, we expect it to be easier to promote PPP

projects in the power and road sectors than in other sectors.


Sources: ADB, CGIS Research estimates

Figure 16: Estimated infrastructure investment in developing Asia by segment

US$bn Investment needs Annual average % of total Investment needs Annual average % of total EIRR

Power 14,731 982 56% 4,089 372 39% 2.6 20-33%

Railway na na na 39 4 0% na 16.1%

Road na na na 2,341 213 23% na 22.8%

Transport 8,353 557 32% 2,466 224 24% 2.5 na

Telecommunications 2,279 152 9% 1,056 96 10% 1.6 24.1%

Water and sanitation 802 53 3% 381 35 4% 1.5 20.0%

Total 26,165 1,744 100% 10,371 943 100% 1.8 na

Period of 2016-2030 Period of 2010-2020 Forecast chg

(x)

12

Stock picks based on sector exposure

Sources: Bloomberg, CGIS Research estimates, Note: based on closing prices of March 1, 2017

Fig 17: Selected stocks from sector exposure

As we expect infrastructure investment in the power generation and environmental

segments to grow the faster than the other segments, we favour stocks with exposure

to these two segments.

In the power sector, we select CMEC (1829 HK), Power Construction Corp (601669

CH), China Gezhouba Group (601669 CH), China Nuclear Engineering (601611 CH),

Shanghai Electric (2727 HK, 601727 CH), Dongfang Electric (1072 HK, 600875 CH),

NARI Tech (600406 CH) and XJ Electric (000400 CH).

In the environmental sector, we focus on Beijing Enterprises Water (371 HK) and Chi-

na Everbright International (257 HK).

Ticker Subsector Mkt cap PEG

(>50% of total revenue) US$ m 2015 2016E 2017E 2015 2016E 2017E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E

CRCC 1186 HK Railway, urban transit 25,089 11.36 10.3 9.7 8.8 6.5% 5.5% 10.5% 83.6% 1.2 1.1 1.0 1.2% 1.3% 1.4% 11.9% 11.3% 11.3%

CRG 390 HK Railway, urban transit 28,312 7.11 11.9 10.8 9.8 10.0% 9.6% 10.5% 93.5% 1.2 1.1 1.0 1.1% 1.1% 1.3% 10.2% 9.7% 9.9%

CCC 1800 HK Road, bridge, dredging 36,873 10.8 10.0 9.0 8.1 11.6% 11.0% 11.4% 71.0% 1.1 1.0 0.9 1.6% 1.8% 2.0% 10.6% 11.1% 11.2%

CSCI 3311 HK Housing 7,631 13.2 12.9 13.9 11.1 18.8% -6.9% 24.3% 45.8% 2.5 2.2 1.9 2.5% 2.6% 2.7% 19.6% 15.9% 17.4%

CMEC 1829 HK Power, transportation 2,987 5.62 10.0 10.7 9.9 -2.0% -6.8% 7.5% 132.4% 1.5 1.3 1.2 3.1% 3.1% 3.2% 14.6% 12.5% 12.4%

MCC 1618 HK Transport, municipal construction 14,320 3.08 11.4 10.8 8.7 14.3% 5.4% 24.5% 35.4% 0.9 0.9 0.8 1.6% 1.7% 2.0% 7.6% 8.0% 9.1%

Beijing Urban Construction 1599 HK Urban transit 821 5.01 14.3 12.2 10.4 -6.1% 17.7% 16.4% 63.6% 1.9 1.7 1.5 1.5% 1.7% 2.1% 13.5% 14.0% 14.5%

China State Construction 601668 CH Housing 38,586 8.85 10.2 8.4 7.7 15.8% 21.0% 9.0% 85.4% 1.8 1.4 1.2 2.3% 2.8% 3.0% 17.3% 16.7% 15.9%

CCC 601800 CH Road, bridge, dredging 36,873 17.99 18.7 16.7 15.1 11.6% 12.1% 11.0% 137.4% 2.0 1.9 1.8 1.1% 1.2% 1.4% 10.6% 11.6% 11.6%

CRCC 601186 CH Railway, urban transit 25,089 13.19 13.5 12.6 11.4 6.5% 6.5% 10.7% 106.4% 1.6 1.4 1.3 1.1% 1.3% 1.4% 11.9% 11.4% 11.4%

CRG 601390 CH Railway, urban transit 28,312 9.03 17.0 15.1 13.5 10.0% 12.6% 11.9% 113.7% 1.7 1.5 1.4 1.0% 1.0% 1.1% 10.2% 10.1% 10.2%

Power Construction Corp 601669 CH Power 15,112 7.56 19.8 17.7 15.6 -23.6% 11.8% 13.6% 114.7% 2.1 1.8 1.6 1.0% 1.2% 1.5% 10.6% 10.1% 10.3%

MCC 601618 CH Transport, municipal construction 14,319 5.08 21.2 18.3 15.3 14.3% 15.4% 19.5% 78.7% 1.6 1.7 1.5 1.1% 1.6% 1.7% 7.6% 9.2% 9.6%

China Gezhouba Group 600068 CH Power, water conservancy 7,368 11.01 18.9 15.4 12.4 10.2% 22.6% 23.8% 52.3% 2.5 2.3 2.0 1.6% 1.8% 1.7% 13.3% 14.7% 15.7%

China Nuclear Engineering 601611 CH Nuclear power plant 6,779 17.77 na na na na na na na 9.1 na na na na na na na na

Zoomlion 1157 HK Construction machinery 5,139 4.1 363.4 -52.7 49.8 -87.5% -790.0% -205.8% -24.2% 0.7 0.7 0.7 3.2% 0.4% 0.7% 0.2% -1.3% 1.4%

Looking 3339 HK Construction machinery 1,174 2.13 62.9 27.0 17.8 -70.0% 133.3% 51.4% 34.6% 1.2 1.2 1.1 0.6% 1.3% 2.0% 1.9% 4.4% 6.4%

Sany International 631 HK Construction machinery 548 1.4 124.1 -155.1 51.7 -83.3% -180.0% -400.0% -12.9% 0.6 0.6 0.6 0.0% 0.1% 0.4% 0.5% -0.4% 1.1%

Weichai Power 2338 HK Heavy-duty truck 6,777 13.76 34.8 21.5 17.2 -72.1% 62.0% 25.0% 68.7% 1.5 1.5 1.4 1.3% 1.4% 1.7% 4.4% 6.8% 8.0%

Sinotruck 3808 HK Heavy-duty truck 2,340 6.58 83.3 31.9 21.7 -53.3% 161.4% 47.0% 46.1% 0.8 0.8 0.8 0.3% 0.8% 1.1% 1.0% 2.6% 3.7%

Zoomlion 000157 CH Construction machinery 5,139 4.83 483.0 -84.7 49.8 -87.5% -670.0% -270.2% -18.4% 0.9 0.9 0.9 3.1% 0.5% 0.8% 0.2% -1.1% 1.9%

Sany Heavy 600031 CH Construction machinery 8,147 7.32 406.7 170.2 42.6 -80.6% 138.9% 300.0% 14.2% 2.5 2.4 2.3 0.1% 0.2% 0.8% 0.6% 1.4% 5.4%

XCMG 000425 CH Construction machinery 4,104 4.03 575.7 149.3 60.1 -89.5% 285.7% 148.1% 40.6% 1.4 1.4 1.3 0.0% 0.1% 0.3% 0.2% 0.9% 2.2%

Guangxi Liugong 000528 CH Construction machinery 1,485 9.08 477.9 216.2 49.3 -89.2% 121.1% 338.1% 14.6% 1.1 1.1 1.1 1.1% 0.5% 1.9% 0.2% 0.5% 2.3%

Shantui Construction

Machinery

000680 CH Construction machinery 1,161 6.44 -9.1 -23.0 -37.9 na -60.3% -39.3% 96.4% 2.5 na na 0.0% na na -27.5% na na

Weichai Power 000338 CH Heavy-duty truck 6,777 11.49 32.8 21.2 16.9 -72.1% 55.1% 25.0% 67.6% 1.4 1.4 1.3 1.7% 1.9% 2.5% 4.4% 6.5% 7.7%

Beijing Foton 600166 CH Heavy-duty truck 3,412 3.52 54.2 42.9 20.7 -23.5% 26.2% 107.3% 19.3% 1.3 1.2 1.2 0.5% 0.4% 1.4% 2.3% 2.9% 5.7%

Shanghai Electric 2727 HK Power generation equipment 6,938 4.01 20.9 21.5 20.5 -14.6% -2.9% 4.8% 423.7% 1.2 1.1 1.0 0.0% 1.0% 0.9% 5.9% 5.0% 5.0%

Dongfang Electric 1072 HK Power generation equipment 2,496 8.29 38.7 -24.6 367.4 -70.3% -257.4% -106.7% -344.4% 0.7 0.8 0.8 0.6% 0.1% 0.1% 1.9% -3.1% 0.2%

Harbin Electric 1133 HK Power generation equipment 681 3.84 -136.1 27.7 26.0 -106.1% -592.0% 6.5% 399.5% 0.4 0.4 0.4 0.3% 0.6% 0.5% -0.3% 1.3% 1.4%

Shanghai Electric 601727 CH Power generation equipment 6,938 na na na na -13.2% -5.3% 6.2% na na na na na na na 5.9% 4.8% 4.9%

Dongfang Electric 600875 CH Power generation equipment 2,495 na na na na -70.3% -257.4% -131.4% na na na na na na na 1.9% -3.2% 1.0%

TBEA 600089 CH Power grid equipment 4,928 10.47 18.0 15.6 13.6 11.1% 15.1% 15.2% 89.1% 1.6 1.5 1.4 1.7% 1.7% 1.9% 8.9% 9.6% 10.2%

China XD 601179 CH Power grid equipment 4,507 6.05 34.4 28.3 23.4 32.3% 21.6% 21.0% 111.1% 1.7 1.6 1.6 2.3% 2.4% 2.7% 4.9% 5.8% 6.9%

Pinggao Electric 600312 CH Power grid equipment 3,262 16.54 22.7 17.8 14.7 11.4% 27.5% 20.6% 71.4% 3.1 2.6 2.3 3.0% 3.1% 3.7% 13.6% 14.8% 15.3%

XJ Electric 000400 CH Power grid equipment 2,614 17.84 25.0 21.2 15.2 -32.4% 17.6% 39.7% 38.2% 2.9 2.6 2.2 0.6% 0.7% 1.0% 11.5% 12.1% 14.6%

NARI Tech 600406 CH Power grid equipment na na na na na 0.0% 15.3% 14.7% na na na na na na na 16.0% 16.4% 16.4%

Beijing Enterprises Water 371 HK Environment protection 6,338 5.63 17.7 14.2 11.6 35.6% 24.5% 22.8% 50.8% 2.7 2.4 2.1 1.5% 1.9% 2.3% 15.2% 16.8% 18.1%

Dongjiang Environmental 895 HK Environment protection 2,194 13.46 30.6 22.9 18.8 31.8% 33.3% 21.7% 86.7% 3.8 3.2 2.5 0.5% 0.7% 0.9% 12.3% 14.1% 13.5%

CT Environmental 1363 HK Environment protection 1,334 1.64 14.5 13.2 10.9 33.3% 10.0% 20.9% 52.3% 3.2 2.6 2.2 0.6% 1.2% 1.5% 21.9% 19.7% 19.8%

China Everbright 257 HK Environment protection 5,994 10.38 19.8 15.8 12.4 22.4% 25.4% 27.3% 45.5% 2.4 2.2 2.0 1.6% 1.8% 2.2% 12.1% 13.8% 16.4%

Guodian Tehnology &

Environment

1296 HK Environment protection 445 0.57 -6.2 na na 24.6% na na na 0.7 na na 0.0% na na -10.7% na na

Canvest Environment

Protection

1381 HK Environment protection 1,145 4.37 28.5 20.8 16.0 7.1% 36.8% 30.1% 53.2% 3.3 2.9 2.4 0.0% 0.5% 0.7% 11.7% 13.9% 14.8%

Dynagreen Environmental

Protection Group

1330 HK Environment protection 529 3.93 na 11.7 8.9 na na 31.2% 28.5% 1.5 1.3 1.2 0.7% 1.1% 1.3% na 11.4% 13.4%

Kangda International 6136 HK Environment protection 511 1.92 10.8 10.4 7.8 -5.4% 4.5% 33.5% 23.2% 1.1 1.0 0.9 0.7% 0.6% 0.9% 10.1% 9.6% 11.4%

Tus-Sound Environmental

Resources

000826 CH Environment protection 4,311 34.72 31.5 26.7 21.6 15.3% 18.0% 23.7% 91.1% 4.8 4.1 3.0 0.4% 0.5% 0.6% 15.2% 15.3% 13.8%

Beijing Capital 600008 CH Environment protection 3,034 4.33 38.7 31.6 27.2 -32.8% 22.3% 16.1% 169.6% 2.8 1.9 1.8 1.7% 2.1% 2.4% 7.2% 6.0% 6.8%

Wuhan Sanzhen Industry 600168 CH Environment protection 1,115 10.81 23.0 21.3 19.3 2.2% 7.9% 10.5% 184.7% 1.8 1.6 1.6 1.3% na na 7.6% 7.6% 8.1%

SPIC Yuanda Environmental 600292 CH Environment protection 1,390 12.25 33.1 68.1 53.3 11.9% -51.4% 27.8% 191.7% 2.0 na na 0.8% na na 6.0% na na

Tianjin Capital Environmental

Protection

600874 CH Environment protection 1,568 8.70 37.8 32.2 30.0 4.5% 17.4% 7.4% 405.0% 2.8 2.7 2.5 0.8% 0.8% 0.9% 7.5% 8.2% 8.3%

Nanjing Gaoke 600064 CH Environment protection 1,965 17.50 16.0 14.1 12.1 39.2% 12.9% 17.2% 70.1% 1.5 1.4 1.2 2.0% 2.4% 3.0% 9.4% 9.7% 10.3%

Fujian Longking 600388 CH Environment protection 2,056 13.23 25.4 21.7 19.5 20.4% 17.3% 11.5% 169.5% 4.0 na na 1.2% 1.4% 1.7% 15.6% na na

Zhejiang Feida Environment 600526 CH Environment protection 1,017 12.78 75.2 na na 21.4% na na na 2.7 na na 0.8% na na 3.7% na na

Harbin Hatou Investment 600864 CH Environment protection 3,230 10.54 52.7 na na -62.3% na na na 1.5 na na 0.0% na na 2.8% na na

Tianjin Teda 000652 CH Environment protection 1,327 6.19 35.8 na na 3.0% na na na 2.9 na na 0.2% na na 8.1% na na

Huadian Energy 600726 CH Environment protection 1,356 5.09 509.0 na na -85.7% na na na 3.1 na na 0.0% na na 0.6% na na

A-share power equipment companies

P/Bk Price

(lc)

PER EPS growth

A-share environment project companies

A-share construction machinery companies

A-share infrastructure construction companies

Dividend yield ROE

H-share infrastructure construction companies

H-share construction machinery companies

H-share environment project companies

H-share power equipment companies

13

Stock picks based on regional exposure and over-

seas business growth potential


Fig 18: Selected stocks for region exposure


Figure 19: Selected stocks for overseas growth opportunities

As we expect higher infrastructure investment in the midwestern and OBOR regions,

we focus on stocks with exposure to these fast-growing regions, such as Xinjiang Ur-

ban Construction (600545 CH), Xinjiang Beixin Road & Bridge (002307 CH), and Si-

chuan Road & Bridge (600039 CH).

Based on overseas growth potential, we identify stocks with 1) more developed busi-

ness exposure, and 2) exposure to the faster growth power and transport segments.

Stocks with higher overseas business growth potential include CCC (1800 HK,

601800 CH), CMEC (1829 HK), Power Construction Corp (601669 CH) and China

Gezhouba Group (600068 CH).

Ticker Mkt cap PEG

US$ m Location 2015 2016E 2017E 2015 2016E 2017E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E

Shanghai Tunnel Engineering 600820 CH 5,346 11.70 Shanghai 24.9 21.7 18.6 6.0% 14.9% 16.3% 1.1 2.2 2.0 1.9 1.3% 1.4% 1.6% 8.9% 9.4% 10.0%

Shanghai Construction Group 600170 CH 5,224 5.04 Shanghai 19.5 17.1 15.3 -22.1% 13.8% 12.2% 1.2 1.6 1.5 1.4 2.5% 2.6% 3.0% 8.4% 8.9% 9.3%

Shandong Hi-Speed Road & Bridge 000498 CH 1,420 8.72 Shandong 25.9 23.6 17.7 21.0% 9.8% 33.2% 0.5 3.2 3.2 2.8 0.0% 0.0% 0.0% 12.4% 13.5% 15.8%

Anhui Water Resources Development 600502 CH 1,318 10.03 Anhui 34.1 26.1 21.2 8.7% 30.6% 23.4% 0.9 3.5 2.8 2.6 0.4% 0.6% 0.0% 10.2% 10.6% 12.3%

Hongrun Construction Group 002062 CH 1,107 6.91 Zhejiang 36.1 28.8 21.9 3.1% 25.3% 31.3% 0.7 3.2 na na 1.0% na na 8.8% na na

Xinjiang Urban Construction 600545 CH 1,248 12.71 Xinjiang 275.1 na na -67.7% na na na 4.1 na na 0.4% na na 1.5% na na

Xinjiang Beixin Road & Bridge 002307 CH 1,088 13.43 Xinjiang 223.8 na na 20.0% na na na 5.0 na na 0.0% na na 2.3% na na

Sichuan Road & Bridge 600039 CH 2,225 5.07 Sichuan 14.9 12.9 11.7 14.8% 15.8% 10.2% 1.2 1.8 1.6 1.4 1.0% 1.0% na 11.9% 12.2% 11.8%

Chengdu Road & Bridge Engineering 002628 CH 915 8.54 Sichuan 284.7 208.3 47.4 -84.2% 36.7% 339.0% 0.1 2.4 2.4 2.3 0.2% na na 0.8% 1.1% 4.8%

Tibet Tianlu 600326 CH 1,046 10.81 Tibet 41.6 na na 116.7% na na na 3.3 na na 0.5% na na 8.0% na na

Dividend yield ROE Price

(lc)

PER EPS growth P/Bk

Ticker Mkt cap Price (lc) Overseas business PEG

US$ m % of 2015 sales 2015 2016E 2017E 2015 2016E 2017E 2017E 2015 2016E 2017E 2015 2016E 2017E 2015 2016E 2017E

CRCC 1186 HK 25,089 11.36 4.6% 10.3 9.7 8.8 6.5% 5.5% 10.5% 0.8 1.2 1.1 1.0 1.2% 1.3% 1.4% 11.9% 11.3% 11.3%

CRG 390 HK 28,312 7.11 4.8% 11.9 10.8 9.8 10.0% 9.6% 10.5% 0.9 1.2 1.1 1.0 1.1% 1.1% 1.3% 10.2% 9.7% 9.9%

CCC 1800 HK 36,873 10.80 c20% 10.0 9.0 8.1 11.6% 11.0% 11.4% 0.7 1.1 1.0 0.9 1.6% 1.8% 2.0% 10.6% 11.1% 11.2%

CSCI 3311 HK 7,631 13.20 >50% (HK, Macau) 12.9 13.9 11.1 15.3% -6.9% 24.3% 0.5 2.5 2.2 1.9 2.5% 2.6% 2.7% 19.6% 15.9% 17.4%

CMEC 1829 HK 2,987 5.62 77.2% 10.0 10.7 9.9 -2.0% -6.8% 7.5% 1.3 1.5 1.3 1.2 3.1% 3.1% 3.2% 14.6% 12.5% 12.4%

MCC 1618 HK 14,320 3.08 7.4% 11.4 10.8 8.7 14.3% 5.4% 24.5% 0.4 0.9 0.9 0.8 1.6% 1.7% 2.0% 7.6% 8.0% 9.1%

China State Construction 601668 CH 38,586 8.85 6.9% 10.2 8.4 7.7 15.8% 21.0% 9.0% 0.9 1.8 1.4 1.2 2.3% 2.8% 3.0% 17.3% 16.7% 15.9%

CCC 601800 CH 36,873 17.99 c20% 18.7 16.7 15.1 11.6% 12.1% 11.0% 1.4 2.0 1.9 1.8 1.1% 1.2% 1.4% 10.6% 11.6% 11.6%

CRCC 601186 CH 25,089 13.19 4.6% 13.5 12.6 11.4 6.5% 6.5% 10.7% 1.1 1.6 1.4 1.3 1.1% 1.3% 1.4% 11.9% 11.4% 11.4%

CRG 601390 CH 28,312 9.03 4.8% 17.0 15.1 13.5 10.0% 12.6% 11.9% 1.1 1.7 1.5 1.4 1.0% 1.0% 1.1% 10.2% 10.1% 10.2%

Power Construction Corp 601669 CH 15,112 7.56 24.8% 19.8 17.7 15.6 -23.6% 11.8% 13.6% 1.1 2.1 1.8 1.6 1.0% 1.2% 1.5% 10.6% 10.1% 10.3%

MCC 601618 CH 14,319 5.08 7.4% 21.2 18.3 15.3 14.3% 15.4% 19.5% 0.8 1.6 1.7 1.5 1.1% 1.6% 1.7% 7.6% 9.2% 9.6%

China Gezhouba Group 600068 CH 7,368 11.01 21.5% 18.9 15.4 12.4 10.2% 22.6% 23.8% 0.5 2.5 2.3 2.0 1.6% 1.8% 1.7% 13.3% 14.7% 15.7%

China Nuclear Engineering 601611 CH 6,779 17.77 6.4% na na na na na na na 9.1 na na na na na na na na

Shanghai Electric 2727 HK 6,938 4.01 11.2% 20.9 21.5 20.5 -14.6% -2.9% 4.8% 4.2 1.2 1.1 1.0 0.0% 1.0% 0.9% 5.9% 5.0% 5.0%

Dongfang Electric 1072 HK 2,496 8.29 13.7% 38.7 -24.6 367.4 -70.3% -257.4% -106.7% -3.4 0.7 0.8 0.8 0.6% 0.1% 0.1% 1.9% -3.1% 0.2%

Harbin Electric 1133 HK 681 3.84 na -136.1 27.7 26.0 -106.1% -592.0% 6.5% 4.0 0.4 0.4 0.4 0.3% 0.6% 0.5% -0.3% 1.3% 1.4%

Shanghai Electric 601727 CH 6,938 na 11.2% na na na -13.2% -5.3% 6.2% na na na na na na na 5.9% 4.8% 4.9%

Dongfang Electric 600875 CH 2,495 na 13.7% na na na -70.3% -257.4% -131.4% na na na na na na na 1.9% -3.2% 1.0%

TBEA 600089 CH 4,928 10.47 22.2% 18.0 15.6 13.6 11.1% 15.1% 15.2% 0.9 1.6 1.5 1.4 1.7% 1.7% 1.9% 8.9% 9.6% 10.2%

China XD 601179 CH 4,507 6.05 11.1% 34.4 28.3 23.4 32.3% 21.6% 21.0% 1.1 1.7 1.6 1.6 2.3% 2.4% 2.7% 4.9% 5.8% 6.9%

Pinggao Electric 600312 CH 3,262 16.54 1.7% 22.7 17.8 14.7 11.4% 27.5% 20.6% 0.7 3.1 2.6 2.3 3.0% 3.1% 3.7% 13.6% 14.8% 15.3%

XJ Electric 000400 CH 2,614 17.84 0.0% 25.0 21.2 15.2 -32.4% 17.6% 39.7% 0.4 2.9 2.6 2.2 0.6% 0.7% 1.0% 11.5% 12.1% 14.6%

NARI Tech 600406 CH na na 0.3% na na na 0.0% 15.3% 14.7% na na na na na na na 16.0% 16.4% 16.4%

P/Bk Dividend yield ROE

H-share infrastructure construction companies

A-share infrastructure construction companies

H-share power equipment companies

A-share power equipment companies

PER EPS growth

14

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One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) men-tioned in this report.

China Galaxy International and the Relevant Parties may, to the extent permitted by law, from time to time participate or invest in financing transac-tions with the securities of the company(ies) mentioned in this report, perform services for or solicit business from such company(ies), and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto.

China Galaxy International may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or invest-ment services in relation to the investment concerned or a related investment or investment banking services to the company(ies) mentioned in this report.

Furthermore, China Galaxy International may have received compensation for investment banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking investment banking mandate from the subject company(ies).

Analyst Certification

The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report.

Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong-listed companies covered in this report; and (4) have any financial interests in the Hong Kong-listed companies cov-ered in this report.

Explanation on Equity Ratings

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China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459

Room 3501-3507, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.

BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :

Documents

Sector Report - chinastock.com.hk€¦ · Sector Report March 2, 2017 Kelly Zou—Analyst double the investment estimated for 2010 (852) ... investment in railways and roads to remain