Broker: OCBC Investment Research
Date of Report: 19 September 2025

China Railway Group: Navigating Margins and Growth in China’s Shifting Infrastructure Landscape

Executive Summary: Buy Rating Amid Margin Recovery and Robust Overseas Orders

China Railway Group (CRG), a leading player in China’s infrastructure sector, continues to be a focus for investors seeking stability and long-term growth in the industrials segment. OCBC Investment Research maintains a BUY rating on CRG, citing strong order momentum, improved overseas revenue, a disciplined approach to cost control, and expectations of margin recovery. However, the company faces headwinds from slower domestic infrastructure activity and profitability pressures.

Investment Thesis: Infrastructure as a Counter-Cyclical Lever

With China rebalancing its economy and facing slower growth, infrastructure investment remains a key counter-cyclical tool. The government’s pivot towards “high-quality” growth, emphasizing profitability and operating cash flow, aligns with ongoing state-owned enterprise (SOE) reforms. While the Belt and Road initiative offers medium-term potential, domestic contracts remain CRG’s core revenue driver, accounting for over 90% of total orders.

Recent Performance Review: Weak Earnings But Order Rebound

CRG’s stock performance has lagged the broader market in 2025, with H-shares and A-shares down 5% and 13% year-to-date, respectively, compared to a 36% rise in the MSCI China Index. This underperformance reflects:

• Weaker-than-expected earnings in recent quarters
• Softer infrastructure construction activity due to local government budget constraints
• Slower new order growth

First-half 2025 revenue declined by 5.9% year-on-year to CNY512.5 billion, mainly due to a 7.5% drop in the infrastructure construction segment. Attributable net profit fell 17.2% year-on-year to CNY11.8 billion, missing market expectations. However, new orders in 1H25 reached CNY1.1 trillion, up 2.8% year-on-year, driven by robust overseas growth (+51.6% YoY), even as domestic new orders slipped by 1.2%. Notably, new orders rebounded strongly in 2Q25 (+20% YoY) after a 1Q25 contraction, signaling improved order intake momentum.

Outlook: Revenue Stabilization and Margin Recovery

The company targets CNY2.8 trillion in new orders for FY25, implying a 3% year-on-year increase following a 12.4% decline in FY24. Management guides for flat full-year revenue at CNY1.1 trillion for FY25 and expects margins to recover, supported by strict cost controls and lower financing costs.

Key Investment Highlights

• Stronger Overseas Revenue: Overseas new orders surged by 51.6% year-on-year in 1H25, offsetting softness in the domestic market.
• Resilient Order Pipeline: 2Q25 saw a significant rebound in new orders (+20% YoY) after a 9.9% contraction in 1Q25.
• Guidance for Margin Improvement: Management expects margin recovery in FY25, leveraging on cost discipline and reduced financing costs.
• Order Growth Outlook: Targeting 3% YoY increase in new orders for FY25.

Key Risks to Watch

• Margin pressure from elevated raw material costs
• Working capital stress due to contract payment delays
• Political and economic risks in overseas markets, especially in developing countries

ESG Update: Room for Improvement

CRG underperforms the industry average in governance and health & safety. The company lacks detailed incident reduction targets, unlike its better-performing peers. However, its involvement in wastewater treatment and green-certified property projects offers exposure to sustainable infrastructure opportunities.

Financial Performance Overview

Peer Comparison: Valuation and Key Metrics

Company Profile: Market Position, Business Mix, and Seasonality

China Railway Group is a state-owned, fully-integrated construction conglomerate with leading market shares in railway, urban transit, and highway infrastructure. Its operations span construction, design, equipment manufacturing, property development, materials trading, and mining. The company’s infrastructure contracts are typically counter-cyclical, with stronger growth during economic slowdowns. Public-private partnerships are used to ease funding pressures on local governments. Operating cash flow is typically weakest in the first half of the year and strengthens in the second half due to back-end loaded customer payments.

Revenue and Profit Breakdown (FY24)

Five-Year Financial Summary

Dividend and Earnings Trends

• Dividend Per Share (DPS): Ranged from CNY0.17 to CNY0.21 over the past five years, with a slight decrease to CNY0.18 in FY24.
• Earnings Per Share (EPS): Peaked at CNY1.29 in FY23, dropping back to CNY1.09 in FY24.

Key Shareholder and Trading Data

• Ticker: 601390.SS
• Market Cap: CNY 128.3 billion
• Free Float: 50%
• Shares Outstanding: 24,631 million
• Top Shareholder: China Railway Engineering (55.8%)
• Daily Turnover: CNY 90.9 million

Potential Catalysts

• Acceleration in new order growth
• Government infrastructure stimulus or increased fiscal support
• Unlocking value from existing infrastructure assets

Conclusion: Attractive Valuation with Clear Recovery Path

China Railway Group presents an appealing investment opportunity for those seeking exposure to China’s infrastructure sector. Despite recent earnings weakness and ongoing risks, the company’s robust order book, overseas expansion, margin recovery guidance, and attractive valuation metrics support a medium-term bullish outlook. The BUY rating reflects confidence in CRG’s ability to navigate the evolving infrastructure environment and recover profitability in the coming year.