Midas

China Railway / Midas: MOR note that China’s Railway infrastructure spending rose 142% yoy in Nov, with total railway investment up 31% yoy to Rmb82b in Nov (vs. 141% yoy in Oct). Railway infrastructure capex in Nov grew a sharp 142% yoy, to Rmb70b (vs. 241% yoy to Rmb70b in Oct). However, railway equipment/renovation investment declined 65% to Rmb12b in Nov (vs. -14% yoy to Rmb11b in Oct). In 11M12, total railway investment was Rmb507b (3% yoy), accounting for 80% of the MoR’s budget of Rmb630bn for 2012 (vs. the 75% average of 2007-10). Total railway infrastructure capex in 11M12 was Rmb432bn (9% yoy), accounting for 84% of the MoR’s 2012 budget of Rmb516bn (vs. the 78% average of 2005-10). Total railway equipment/renovation spending in 11M12 was Rmb75b (-21% yoy), accounting for 66% of the MoR’s 2012 budget of Rmb114b (vs. the 64% average of 2007-10). Nov numbers imply a continued accelerating investment in ongoing railway projects. Deutsche believe MoR’s 2012 budget is achievable. If the MoR’s 2012 railway plan is realized, we will see yoy growth of 30% in December railway capex. Based on checks with CSR, guidance is that CSR’s latest guidance that the MoR will place orders for high-speed trains in 4Q12 is the key reason for the equipment makers’ rally. However, Deutsche believe earnings enhancement from these orders will be limited and mkt expectations on 2013 earnings look too optimistic. Overall, Deutsche believe that strong Nov numbers could further support sector Sentiment and reiterate its positive stance on the railway sector (especially constructors), due to a better outlook for 2013 (including railway and subway spending), accelerating earnings growth and potential VAT reform.