Events:

The company announced that sales revenue in 2013 was 2.83002 billion yuan, an increase of 94.73 million yuan over the previous year, an increase of 3.46% over the same period last year; the total profit realized was 146.63 million yuan, down 10.32 million yuan and 6.57% over the previous year; and the rate of return on net assets was 5.55%. The cost rate of the main business is 97.84%, and the business target set at the beginning of the year has been basically achieved.

Comments:

The company's 2013 performance was lower than expected. In 2013, the company achieved sales of 158460 axles, down 1.97% from the same period last year; due to the decline in market demand, wheelset sales were only 12324 sets, down 55.06% from the same period last year; due to good exports of vehicles and pillow side frames, the company achieved railway vehicle sales of 2311 in 2013, an increase of 9.01% over the same period last year, and 3424 pillow side frames, an increase of 6.77% over the same period last year.

The R & D and commissioning of new products will become a new profit growth point for the company. The company has a leading advantage in high-speed and heavy-duty axles and has strong market competitiveness. in 2013, the company completed the process research and process verification of high-speed car axles, and passed the technical scheme review of the expert group of the Railway Corporation. The company's high-speed car axle is expected to be put into trial operation on the Shanghai-Kunming line this year, and it is expected to open the prelude to localization in 2015. At the same time, with the improvement of the company's vehicle production qualification, the company completed the design of the vehicle exported to Pakistan in 2013 and obtained customer approval; in addition, the company completed the trial production of 110t reinforced pillow, reduced weight side frame, 70t improved bolster and other products of American SCT company in 2013, and passed the dynamic and static load test, the company signed long-term agreements with overseas companies, and achieved steady export business growth.

The scale of fixed asset investment in the railway industry increased in 2014, and the company's profits are expected to maintain steady growth. In accordance with the decision-making and deployment of the executive meeting of the State Council, the China Railway Corporation has increased its target for railway construction this year on the basis of comprehensive consideration of the needs of economic and social development, railway transport needs, and the ability to guarantee funds for railway construction. First, the number of newly started projects has increased from 44 to 48; second, the national investment in railway fixed assets has increased from 700 billion yuan to 720 billion yuan; third, the mileage of new lines put into production has increased from 6600 km to more than 7000 km; and fourth, 33 preliminary work projects will be carried out. 10 projects will be completed by the end of the year. If China's economy remains in the doldrums, it is still possible to further increase fixed asset investment in the railway industry, and the railway equipment industry will benefit.

Rating:

We expect the company to earn 0.35 and 0.39 yuan per share from 2014 to 2015, based on the closing price of 12.55 yuan on April 23, 2014, corresponding to PE 36.29 times and 31.87 times, respectively, maintaining the company's "buy" rating.