China's Chinese iron margin is "U"-inverted and share price will break

China Railway (601390, close to 5.94 yuan) share prices experienced in 2008 and the first half of 2009, nearly a year of consolidation, the previous investors to the company's controversial, mainly focused on the company's operating income growth is consistent with expectations, management efficiency, increase in gross margin, diversification and the Australian dollar exchange and so on. The company recently held a two-report performance conference, effectively eliminating the current market uncertainty about its doubts.　　China Merchants Securities believes that the company's share price will be the opportunity to form an effective conference to break through, the demand for a strong rise. Steady development of engineering business in the first half of 2008, many investors remained sceptical about the Railway ministry's investment growth, which has largely been eliminated with the massive growth in railroad investment. In January-March this year, railway investment growth has exceeded market expectations, if according to the 2009 years ago three months of rail investment growth forecast, this year, railway investment will exceed all market expectations, fixed assets investment reached about 900 billion yuan, infrastructure investment reached 6750~7000 billion.　　The substantial increase in railway investment, the company's railway construction income also increased significantly, is expected to reach 150 billion yuan in 2009, an increase of 50%. 2009 is the peak of the Ministry of Railways Budget Adjustment, the Ministry of Railways has done a lot of work on the budget adjustment of railway projects, this year, 40 projects will enter the proposed liquidation phase. In the process of the proposed budget liquidation, the adjustment amplitude is relatively large, the current total railway construction industry loss situation is basically controlled. The company now after 2007 years, 2008 two years of preparation, all the basic information of all projects reported to the Ministry of Railways.　　China Merchants Securities believes that the adjustment of the Ministry's budget estimates will further enhance the company's profit margin. In addition, the railway construction business main material supply way from "A for" into a "armour control", which will make the construction unit to obtain more initiative.　　And from the company 2008, 2009 new signing contract, the basic is in the high price of the budget, so, because of "time lag" reasons, the company in the two-year new signing contract will receive more material premium. Diversify into the right direction at present, the company's diversified path is relying on the construction of limited-related diversification, such as minerals, real estate, construction machinery manufacturing, capital operations (BT, bot, etc.), the current company's diversification is on the right track, the company's business has played a very important complementary role,　　2008, the company's non-construction business operating profit contribution reached 34.2%. China Merchants Securities believe that "real estate + resources" This year will enhance the value of the company. In real estate, the company 2009 real Estate sales will reach about 5 billion yuan, new floor area of 2 million square meters, the development of floor area of 7 million square meters; in minerals, mainly gold, coal and copper,　　2008, the business has been net profit of about 350 million yuan, is expected since 2009, the company's mineral business will begin to contribute to the gradual large-scale benefits. The company's gross margin this year willShows the shape of "U" inversion. This is mainly based on the following four reasons: First, the 2008 new signing of the high price closed contracts will be gradually settled in the next 2-3 years, the second is 6 billion yuan of low-cost material reserves will be put into use in 2009; third, the company's non-construction business in 2009 began to play a scale of profitability;　　The control of project cost and cost is further enhanced. In addition, as corporate management measures continue to advance, the 2009 management cost rate is expected to be reduced to 3.6%~3.7%.　　The foreign currency assets were approved back, eliminating the main factors that led to the company's 2008-year performance decline, and may gain exchange earnings.　Risk hint: The material price changes greatly, the management level compression progress and so on will have the influence to the performance. China Merchants Securities