Rail vehicles supporting products industry leader, market share of more than 40%. The company is mainly engaged in the R & D and production of rail transit vehicle supporting products, which can be divided into interior equipment and equipment according to the use of the products, including roof, floor, luggage rack, seats, boxes and so on. The company achieved revenue of 2.932 billion yuan in 2017, which can be divided into urban rail subway and bullet train vehicles according to the product application scenarios, accounting for 47% and 35% respectively. The company's products are widely recognized, EMU and subway interior market share of more than 40%. In 2016, the company installed 1291 EMU and 2328 subways, while the ownership of EMU and urban rail subway in China increased by 3040 and 4962 respectively in the same period. according to this, the market share of EMU and subway interior is 42.5% and 46.9% respectively.
Focus on creating customer stickiness, core barriers determine profitability. The sales income of 2017H1 company to CRRC Corporation accounts for 51.02% of the operating income, and the relatively high customer concentration is determined by the market pattern of the downstream industry of the company. The core barrier of the company is customer stickiness, which depends on three aspects: first, industry qualification, second, customer recognition, and third, technical barriers. The core barrier helped the company achieve a higher gross profit margin, which was as high as 40% in 2017 and the net profit margin remained above 20%. In 2017, the ROE was as high as 33%, and the ROIC was as high as 15.6%, which was much higher than that of comparable companies in the industry, with strong profitability.
Downstream industry prosperity inflection point upward, the next three years urban rail transit will enter the opening peak. As for EMU, regardless of the encryption demand of existing lines, the new mileage of eight vertical and eight horizontal is expected to bring 1747 EMU, and the demand is stable. As the fifth-level overhaul is approaching, large-scale replacement of motor car parts will be carried out, the maintenance market will grow substantially, and new demand for the company's products will be put forward. As for the subway, we have combed the urban rail currently under construction, and it is estimated that the new urban rail mileage from 2019 to 2021 will be 728.46 km, 1410.28 km and 1599.06 km respectively. Without considering the renewal demand, the corresponding subway vehicle demand from 2019 to 2020 will be 9590 and 10874 respectively, which will support the business income of the company's subway supporting products.
Profit forecast and valuation. It is estimated that the EPS of the company from 2018 to 2020 is 0.86,0.99,1.17 yuan respectively, and the corresponding PE is 17.8,15.4,13.0 times according to the latest closing price of 15.21 yuan. Considering that the company has a high market share and is a leader in the industry, and will continue to benefit from the recovery of the downstream EMU industry and the peak delivery of subway vehicles, the company is expected to maintain high growth in the next three years, giving the company an "overweight" rating for the first time.
Risk hints: the risk of policy change of rail transit industry, the risk of fluctuation of railway investment, the reduction of bargaining power to downstream vehicle enterprises, the problem of product quality, the risk of fluctuation of raw material price.