Traffic Control Technology Co.Ltd., a Communications-based Train Control (CBTC) company to list on STAR Market, announced its IPO 2,771.28 times oversubscribed and a 0.048% odds of receiving an allocation of shares online on July 15. Traffic Control Technology priced its share at CNY 16.18 and plans to issue 40 million stocks in IPO. That implies an astonishing high P/E ratio: 43.03- it is high compared to its rival CRSC’s 18.8, not even mention when it comes to the average P/E ratio of 14 to 16 in the past twelve months in China's stock market.
Founded in 2009, the company competes with CRSC (founded in 1953) that focuses traffic control equipment and systems as well, an absolute scale leader in the vertical. The Beijing-based company generated operating revenue of CNY 1.2 billion (USD 169 million) last year, up 32% from the 2017’s CNY 879.62 million (USD 127.89 million). For the record, CRSC posted CNY 40.01 billion (USD 5.8 billion) in 2018. Although Traffic Control Technology can hardly beat CRSC in terms of scale, its minor size positions the company a better profit growth: although generating -15.84% net profit growth in 2017 it witnessed a strong year with 44.15% year-on-year increase in 2018. On the contrary, CRSC’s profit losing momentum: 10.11% and 7.36% YoY growth in 2017 and 2018, respectively.
The train control and protection player has been adding more investment in R&D in 2017: CNY 81.55 million (USD 11.86 million) were spent, representing 9.27% of revenue. CRSC, spent 3.4% of revenue into R&D, by contrast.
The market for CBTC is primarily driven by rising demand for government support and heavy investment. China poured CNY 485 billion (USD 70.52 million) in infrastructure in 2018 and keeps approving more projects that worth at least CNY 1.1 trillion (USD 173.2 million) since last December. Transportation, energy and hydraulic projects are the most popular projects.
In addition, China plans to invest in 6,800 kilometers (4,225 miles) worth of new railway lines in 2019, a 40% jump from the length of tracks laid last year. At least 3,200 kilometers of this target will be high-speed rail. Rapid-paced urbanization and increased demand for connectivity brighten up the two companies’ financial statements, as well as investors’ earnings expectations.