Core Viewpoint - China Railway Construction is planning to integrate its subsidiary China Railway Equipment with another wholly-owned subsidiary, China Railway Heavy Industry, to form a new entity called China Railway Heavy Industry Group Limited. The integration is still in the planning stage, and specific methods have yet to be determined [1]. Group 1: Integration Details - The integration aims to combine two major equipment manufacturing subsidiaries of China Railway Construction, enhancing the company's position in the industry and diversifying its revenue sources beyond just railway maintenance machinery [2][3]. - China Railway Heavy Industry, established in 2007, has become the largest underground engineering equipment and rail equipment manufacturer in China, with a strong product lineup including tunnel boring machines and special equipment [2]. Group 2: Financial Implications - In 2016, China Railway Heavy Industry reported a net profit of 960 million RMB, which is 2.1 times that of China Railway Equipment, and a net asset value of 6.9 billion RMB, 1.2 times that of China Railway Equipment. The merger is expected to significantly enhance the revenue scale and return on equity (ROE) of the listed company [3]. - The combined net profit of both companies in 2016 was 1.43 billion RMB, with total net assets of 12.43 billion RMB. If the merger is completed, the estimated market value could reach 14.76 billion HKD based on a 9x price-to-earnings (PE) ratio [4]. Group 3: Market Position and Future Prospects - The integration is theoretically feasible, and if fully merged, the new entity could qualify as a target for the Shenzhen-Hong Kong Stock Connect, given its projected market value exceeds the 5 billion HKD threshold [4][5]. - The current stock price of China Railway Equipment corresponds to a 9x PE ratio and a 0.85x price-to-book (PB) ratio, indicating a potential undervaluation compared to peers. The target price is set at 4.6 HKD, reflecting a 12x PE ratio for 2017 [5].