China CNR IPO could raise up to $1.42 billion

Unlike "WH Group, CNR's outlook is clear," Chik said. The "Chinese government is supporting the transportation sector. The prospectus shows that CNR's profit has been growing at a steady rate in the past three years. If the policy is supportive, their pace could be faster in upcoming years."

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CNR President Cui Dianguo told a Hong Kong roadshow on May 9 that the timing is an intelligent decision and management is confident about the offering, given the long-term outlook of China's railway business.

He said the company should see the share of overseas business in total revenue rise to one-fifth in two to three years. At the end of 2013, CNR received 7.58 billion yuan ($1.23 billion) from overseas markets, or 7.8 percent of total revenue.

On May 2, China Railway Corp,, the state-controlled commercial entity spun off by the Ministry of Railways, raised its annual spending target from 720 billion yuan to 800 billion yuan in 2014. Planned projects also rose to 64 from 48 this year.

Goldman Sachs said in a research report the IPO is a proof of China's commitment to developing its domestic railway and the sector is long-term positive.

"In general, CNR appears to be worth buying," Gary Wong, an industrial analyst at Guotai Junan Securities in Hong Kong, said. "The valuation is quite low." CNR performed better than its rival CSR last year, in both profit and revenue terms, he said.

Listed on the Shanghai stock exchange, CNR rose 1.95 percent on Monday to close at 4.70 yuan per share, while CSR Corp Ltd, China's biggest train maker, gained 1.83 percent to 4.45 yuan per share in Shanghai on the same day. CSR shares in Hong Kong fell 1.86 percent to HK$5.81 on Monday.