CRRC Limit Up in Shanghai Debut

CRRC, the CSR-CNR merged rail company, was limit up in Shanghai in its debut on Monday. Hong Kong shares increased 4%.

CRRC Corp makes strong debut as CSR-CNR merger completes

A new conglomerate formed by the merger of China's top two high-speed rail makers, China North Railway (CNR) and China South Railway (CSR), debuted strongly on the Chinese stock market on Monday.

The post-merger company, named CRRC Corp., rose by the daily limit of 10 percent at the start of trading and remained at that level until the end of Monday's trading session, priced at 32.4 yuan (5.29 U.S. dollars) per share.

Since the announcement of the merger of CNR and CSR on Oct. 30,2014, shares in the two companies surged more than fivefold before their trading suspension on May 7.

According to the merger plan, the incorporated company will emphasize overseas industrial distribution and management in order to achieve global prominence.

Reuters reported on April 29 that the top two train makers have been in discussions with Bombardier Inc. about possibly buying a controlling stake in the Canadian company's railway unit.

The discussions could not move forward until CSR and CNR completed the merger, Reuters said.

Barrons: CRRC: An Expensive Way to Ride China’s Rail Boom

aster revenue growth from global expansion, combined with substantial savings in administration and research and development costs, could see CRRC generate 31% earnings growth over the next three years, according to estimates from Yang.

But that growth doesn’t come cheap. CRRC fetches 25 times projected earnings at its current share price, which is much higher than the 14 times at which Siemens trades and the 20 times for French train maker Alstom ( ALO.FR ). While it could be argued that CRRC’s potential to grab market share from its western rivals could justify a higher valuation, Boeing ( BA ), which dominates the global aircraft market in a duopoly with Airbus ( AIR.FR ), also trades at a lower valuation of 16 times projected earnings compared to CRRC.

There’s also the risk that CRRC’s global expansion could be weaker than what the market expects. Nomura analyst Patrick Xu, who has a reduce rating on the stock, forecasts CRRC to average 20% annual earnings growth over the next three years, with merger synergies boosting the bottom line by 27%. Xu sees 25% downside from the stock’s current levels and urges investors to sell the shares on any short term strength following the resumption of trading.