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China Railway Group Ltd reports 16.3% EBITDA growth in 2017 and almost no change in EBITDA Margin of 4.5%

29/03/2018 • About China Railway Group Ltd ($390) • By InTwits

China Railway Group Ltd reported 2017 financial results today. Overall the company's long term financial model is characterised by the following facts:
  • EBITDA Margin is relatively stable: 4.5% in 2017 vs. 4.2% in 2016 vs. 4.5% in 2013
  • China Railway Group Ltd has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.7%. At the same time it's in pair with industry average of 26.8%.
  • CAPEX is quite volatile: 292 in 2017, 481 in 2016, 327 in 2015, 1,270 in 2014, 252 in 2013
  • The company has potentially unprofitable business model: ROIC is at 6.1%
Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

China Railway Group Ltd ($390) key annual financial indicators

mln. CNY201320142015201620172017/2016
Gross Profit40,34048,51548,68650,74262,72923.6%
Net Income9,37410,36012,25812,50916,06728.4%
Balance Sheet
Short Term Debt82,85590,01585,555105,74988,832-16.0%
Long Term Debt104,35295,34596,70591,40385,505-6.5%
Cash flow
Revenue growth16.1%9.2%1.7%5.9%8.4%
EBITDA growth15.5%6.0%0.6%2.3%16.3%
Gross Margin7.5%8.2%8.1%8.0%9.1%1.1%
EBITDA Margin4.5%4.3%4.3%4.2%4.5%0.3%
Net Income Margin1.7%1.8%2.0%2.0%2.3%0.4%
SG&A, % of revenue3.1%3.3%3.3%2.9%3.3%0.5%
CAPEX, % of revenue1.5%1.4%1.3%2.0%2.0%-0.0%
Net Debt/EBITDA4.6x4.5x3.4x3.1x1.9x-1.3x

China Railway Group Ltd ($390) key quoterly financial indicators

mln. CNY17Q117Q217Q317Q4YoY change
Net Income2,6235,0853,3285,03115.3%59.5%-12.0%54.1%
Balance Sheet
Short Term Debt109,057112,467123,930125,2279.2%11.3%20.6%18.4%
Long Term Debt91,37288,46490,08983,610-4.4%-3.3%-4.5%-8.5%
Gross Margin8.5%9.6%8.5%9.6%0.4%1.3%-0.2%2.6%
Net Income Margin 2.0% 3.1% 1.9% 2.3%0.1%0.9%-0.3%0.6%

Revenue and profitability

The company's Revenue increased on 8.4%. Revenue growth showed acceleration in 17Q4 - it increased 11.7% YoY. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased on 5.0 pp from 69.9% to 75.0% in 2017.

Gross Margin increased slightly on 1.1 pp from 8.0% to 9.1% in 2017. SG&A as a % of Revenue showed almost no change in 2017.

Net Income marign showed almost no change in 2017.

Capital expenditures (CAPEX) and working capital investments

In 2017 the company had CAPEX/Revenue of 2.0%. CAPEX/Revenue increased slightly on 0.63 pp from 1.4% in 2014 to 2.0% in 2017. Average CAPEX/Revenue for the last three years was 1.8%.

Return on investment

The company operates at low ROIC (6.14%) and ROE (11.83%). ROIC increased slightly on 0.88 pp from 5.3% to 6.1% in 2017. ROE increased on 2.3 pp from 9.5% to 11.8% in 2017.

Leverage (Debt)

Company's Net Debt / EBITDA is 1.9x and Debt / EBITDA is 5.7x. Net Debt / EBITDA dropped on 1.3x from 3.1x to 1.9x in 2017. Debt dropped on 11.6% while cash increased slightly on 1.9%.

Appendix 1: Peers in Engineering&Construction

Below we provide China Railway Group Ltd benchmarking against other companies in Engineering&Construction industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
China National Culture Group Ltd ($745)-76.8%-55.8%592.3%86.7%
Kingbo Strike Ltd ($1421)19.5%21.3%-47.7%81.8%
NEW Concepts Holdings Ltd ($2221)20.7%100.9%68.6%80.8%
Richly Field China Development Ltd ($313)-45.0%464.2%-65.7%77.2%
Glory Flame Holdings Ltd ($8059)30.8%20.2%1.0%42.9%
Median (35 companies)24.8%20.8%10.3%6.4%

Top companies by Gross margin, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Broad Greenstate International Co Ltd ($1253)28.7%35.8%36.7%37.4%
PYI Corp Ltd ($498)5.1%16.3%24.1%31.1%
In Construction Holdings Ltd ($1500)21.9%21.6%29.5%26.3%
Tysan Holdings Ltd ($687)11.7%18.4%17.8%22.8%
Chevalier International Holdings Ltd ($25)26.3%25.9%24.2%21.9%
Median (27 companies)16.9%16.1%16.3%12.9%

Top companies by EBITDA margin, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Beijing Capital International Airport Co Ltd ($694)52.9%50.3%51.6%50.9%
Cheung Kong Infrastructure Holdings Ltd ($1038)20.6%36.2%60.9%38.4%
Sino Credit Holdings Ltd ($628)16.0%-5.1%34.9%
Broad Greenstate International Co Ltd ($1253)24.4%28.8%31.0%30.9%
In Construction Holdings Ltd ($1500)20.4%19.1%25.9%23.3%
Median (31 companies)11.2%9.7%9.0%5.3%

Top companies by CAPEX/Revenue, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Louis XIII Holdings Ltd ($577)29.5%9.3%16.1%47.3%
Sino Credit Holdings Ltd ($628)4.7%8.8%46.8%
Richly Field China Development Ltd ($313)6.7%1.1%7.6%30.5%
PYI Corp Ltd ($498)4.2%24.5%13.1%19.7%
Grand Ming Group Holdings Ltd ($1271)16.1%8.7%33.8%14.0%
Median (26 companies)3.3%1.8%2.1%2.4%

Top companies by ROIC, %

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
In Construction Holdings Ltd ($1500)52.8%37.0%49.4%40.4%
NEW Concepts Holdings Ltd ($2221)51.0%78.8%39.0%23.3%
Chun Sing Engineering Holdings Ltd ($2277)98.3%54.9%43.7%21.6%
Broad Greenstate International Co Ltd ($1253)85.1%51.2%26.0%20.9%
Tysan Holdings Ltd ($687)10.6%14.0%21.0%20.7%
Median (37 companies)6.1%5.4%5.6%2.5%

Top companies by Net Debt / EBITDA

Top 5 FY2013 FY2014 FY2015 FY2016 FY2017
Ngai Shun Holdings Ltd ($1246)-0.6x-0.8x-2.1x257.8x
Shun Cheong Holdings ($650)9.2x7.6x67.0x
KFM Kingdom Holdings Ltd ($3816)-0.1x0.5x0.4x53.8x
Chun Wo Development Holdings Ltd ($711)8.1x12.6x15.9x10.5x
Grand Ming Group Holdings Ltd ($1271)6.3x4.1x5.9x5.8x
Median (24 companies)0.3x0.2x0.7x0.9x