CSR (1766 HK, HK$3.70) – Expect downside pressure

Results. For FY12/08A, the revenue increased 30.9% YoY to RMB35,092.8m with net profit up 92.7% YoY to RMB1,685.6m. The gross margin widened 1.7 pcp YoY to 16.7% with net margin up 1.5 pcp YoY to 4.8%. The growth was mainly driven by EMU (up 112.0% YoY to RMB5679.6m), city rail (up 51.5% YoY to RMB2,574.2m) and others including train componet (up 118.7% YoY to RMB5,986.3m). However, for 1Q FY12/09A, the top line only increased 9.7% YoY to RMB7,375.0m while bottom line dropped 47.5% YoY to RMB192.8m. We think the 1Q results maybe affected by MoR's order delay.

Our view. Though we had expected CSR’s 1Q FY12/09F results to soften, given the delay of MoR orders in Dec 2008 and recent award of EMU contract to CNR Jan 2009 the margin decrease surprised on the downside. Counter is currently trading at consensus 19.0x FY12/09F P/E prior to street adjustments and we think the stock will be under downward pressure, exacerbated by the fact that the company’s analyst meeting is not until 4 May. This delay in clarifying the company’s outlook would cause further uncertainty in the stock.

		FY08						1Q09
		Yoy Chg		Rmb mn				Yoy Chg		Rmb mn
Rev		30.9%		35,092.8				9.7%		7375.0
NP		92.7%		1,685.6				-47.5%		192.8
Rev breakdown		Yoy Chg		Rmb mn				Yoy Chg		Rmb mn
EMU		112.0%		5,679.6				N.a.		N.a.
City Rail		51.5%		2,574.2				N.a.		N.a.
Locomotives		14.8%		8,136.6				N.a.		N.a.
Passenger carriages		-4.2%		3,265.2				N.a.		N.a.
Freight wagons		2.8%		9,450.9				N.a.		N.a.
Others		118.7%		5,986.3				N.a.		N.a.
Margin		Ppt Chg		%				Ppt Chg		%
GP		1.7		16.7				-1.8		16.3
NP		1.5		4.8				-2.9		2.6
Source: The company
	FY09 Estimate
	Yoy Chg		Rmb mn
Rev	24.7%		42,191.0
NP	42.3%		2,037.9
FY12/09F	EPS(Rmb)		PE(x)		BVPS(Rmb)		PB(x)
	0.171				1.508
Share Price assumption
HK$2.0			10.6				1.2
HK$2.5			13.3				1.5
HK$3.0			15.9				1.8
HK$3.5			18.6				2.1
HK$3.7			19.7				2.2
HK$4.0			21.3				2.4
HK$4.5			23.9				2.7
HK$5.0			26.6				3.0
HK$5.5			29.2				3.3
HK$6.0			31.9				3.6
Source: Bloomberg