Buy China Railways Construction at HKD 5.40
CSRC is one of the cheapest companies in the world while being the world’s largest construction company as well.
Trading at 2.7x earnings while Earning per share have multiplied by almost 2x over the five years between 2017 and 2022, or a CAGR of 20 %, it’s PRICE / EARNINGS GROWTH IS AMAZINGLY CHEAP at 5.7 or almost 25 % of its growth rate instead of being a multiple.
Based on Peter Lynch’s PEG ratio valuation yardstick, the company should be trading at 4 x its current stock price….
CSRC is a Chinese Government majority-owned company that will always have contracts and will never be at risk. It commands resources and expertise that very very few companies I the world possess and is a key actor of world’s infrastructure projects.
With 25.7 Billion in net profits and a market capitalisation at 100 Billion, the company operates with an extremely earning yields of 25 %.
China Railway Construction’s reported its H1 2021 results on 30 Aug
Sales increased 31.8% YoY to RMB488.5 billion.
Shareholders’ net profit increased 32.1% YoY to RMB12.3 billion.
Its results were slightly above expectations.
Analysts expect total revenue to increase at a CAGR of 15.3% in the 2020-2023 period and overall gross margin to decrease from 8.8% in 2021 to 8.6% in 2023 but they also expect the Company’s ROE to increase from 9.6% in 2021 to 10.4% in 2023.
EPS estimates for 2021/ 2022/ 2023 are RMB1.897, RMB2.102 and RMB2.354, respectively.
Using still extremely low PE ratios of 3.7x, 3.4x, 3.0x for 2021/ 2022/ 2023, that would give a stock price at HKD 8. 5 or 57 % increase from here.
New contracts amounted to RMB1,054.6 billion, up 20.4% YoY. We expect that the government will continue to increase spending in rail transit construction in the 14th Five-Year Plan period, to help to achieve the dual goal of carbon emission peak in 2030 and carbon emission neutrality in 2060.
China has launched this year the first 600 km/h high speed train in. the world and that technology will probably be implemented in the future.
CSRCC has been put under sanctions by the Trump Administration on the motives that it builds military infrastructure as well as civilian projects.
The logic of the USA is amazing sometimes !!! One wonders which US construction companies builds the military barracks, airports and ports of the US military ?
Should all the procurement companies of the Us army be put under sanctions by foreign countries ? Would that be considered normal ?
America’s binary anti China sentiment will always amazes us. They blame Xi Jing Ping for containing Big tech and data usage while at the same time their one US Seante hears about the xecsses of Facebook and calls the company a morally rotten company with nefarious influence on politics and children. and Zuckerberg says that it is up to the US Government to put the regulations.
So, in essence, America blames others for doing exactly what it is asked to do at home and does not do because of its paralysing democratic system. See the debt limit and the government running out of money.
But what this means is that US investors are now out of the world’s largest construction and cheapest company in the world and we expect the Biden Administration to lift those useless and counterproductive sanctions.
The stock has clearly bottomed out and his low valuation and high dividend yields makes it a prime candidate for acore holding in any global portfolio. We have it in our China Deep value portfolio.
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