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performing sector in 2012 among all China infra-related sectors, while the
machinery sector lagged the most. Among all China infra E&C names, CRG
and CRCC were the best performers, followed by CSC, while CCCC was
the sector’s laggard during the year.
Infra spend to further accelerate in 2013: Recovery of public sector
spending was the key theme in 2012, when China reversed the tightening
measures imposed previously on both funding and new project approvals.
Looking ahead, we expect public sector infrastructure spending to be the
key driver of the 7.5% GDP growth projected for 2013. It is worth
highlighting that infra spending typically accelerates in Year 2 during the
5YP period; this may be reinforced this time around given the leadership
transition taking place in 2Q. Overall, we forecast c.20% growth in infra
spending in 2013. Among all areas, capex driven by the central government,
such as railway spending, has the best visibility, in our view.
Urbanization to propel subway investment: Urbanization is a key policy
initiative for the new government, and is likely to boost subway investment
in the coming years, implying upside to the Rmb1.1T planned in the 12FYP.
We have seen aggressive subway project approvals from NDRC since 2H12,
with capex of Rmb700B approved in early Sept-12 followed by another
Rmb135B rolled out in late November.
Railway capex forecasts: The official annual target should be announced in
January. Annual railway spending is likely to range from Rmb530B to
600B. The initial target might be at the low end of the range, but is likely to
be revised up again throughout the year, similar to the pattern seen in 2012.
Overall over the 12th FYP period, we are looking for a cumulative five-year
spending of Rmb2.4T on civil works and a total expenditure of Rmb3.0T
including equipment and upgrades.
Raising our DCF-based PTs for CRG and CRCC: For CRCC, we raise
our PT to HK$11.6. We keep our earnings estimates unchanged for FY12-
14, which continue to stand at 9%/18%/13% above consensus; our PT
change is driven mainly by the extension of our timeframe to Dec-13. For
CRG, we raise our PT to HK$5.8. We raise our earnings estimates by
2%/9%/12% for FY12/13/14, and these are 7-12% above consensus. Our PT
change is driven by these revisions as well as the extension of our timeframe
to Dec-13. We retain our forecasts for CCCC: the laggard’s valuation now
looks attractive, suggesting that most negatives are factored in, while the
outlook is improving.
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