Brief performance review
On October 27, the company released its three-quarter report for the year 23. 2301-03 achieved revenue of 143,035 billion yuan, +5.51% year-on-year; realized net profit of 6.152 billion yuan, +2.06%; of these, Q3 achieved revenue of 55.732 billion yuan, +2.7% year-on-year, and 03 achieved net profit of 2,691 billion yuan in a single quarter, -7.09% year-on-year.
Management analysis
New orders are growing steadily, and we are optimistic about the company's long-term revenue release. According to the company announcement, in January-September '23, the company signed new orders of about 211.5 billion yuan, an increase of 18.8% over the previous year; its international business contract amount was about 37.6 billion yuan, an increase of 62.8% over the previous year. The steady growth in new orders is beneficial to the company's long-term revenue release.
Increased railway investment+passenger traffic recovery+advanced construction period is approaching, and domestic demand for rail transit continues to be released. 1) The strength of railway investment: According to the State Railway Administration, from January to September '23, China's railway fixed asset investment was 508.9 billion yuan, an increase of 7.1%; 2) Passenger traffic recovery: According to the Ministry of Transport, China's railway passenger traffic gradually recovered in '23, reaching a total of 2,933 billion people in January-September, an increase of 112%. As passenger traffic resumed, China's EMU tenders picked up. China Railway Group's initial tender volume for EMUs in '23 was 103, which is over the full year of '22. 3) The intensive period of advanced repair is coming: In 12-15, the growth rate of EMU ownership in China was high, and the CAGR was 27.2%. The five-level EMU repair cycle in China is about ten years, that is, demand for level 5 repairs will usher in a significant increase after 22 years. According to the China Railway Bidding Network, from January to September '23, China has already tendered 290 sets of advanced EMU repairs, far surpassing the 198 units in '22.
With the commencement and operation of the Yawan High Speed Rail and the signing of an EMU for the Hungarian Railway, I am optimistic that the subsequent EMU will go overseas to relay. China is deeply involved in railway construction along the “Belt and Road” and is progressing smoothly. Currently, the first phase of the China-Thailand Railway project has entered the full construction stage, and the Pakistan No. 1 railway main line upgrade project is expected to be completed in 25 years. In September '23, the Yawan High Speed Rail train set manufactured by the company was put into operation, becoming the first order for China's high-speed rail trains to go overseas. In October, the subsidiary Zhongke Changke signed an EMU sales contract of about 4.2 million yuan with Serbia. This is the first time that a Chinese EMU with a speed of more than 200 kilometers per hour has been exported to Europe. China achieved a major breakthrough in rail transit equipment exports. As cooperation between China and countries along the “Belt and Road” in the field of rail transit deepens, the company is expected to continue to benefit from rail transit equipment going overseas.
Profit Forecasts, Valuations, and Ratings
We expect the company to have revenue of 2407/2598/280.1 billion yuan in 23-25, net profit of 118.134/144 billion yuan, and corresponding PE of 13X/12X/11X, maintaining the “buy” rating.
Risk warning
Investment in railway fixed assets fell short of expectations; EMU bidding and procurement fell short of expectations; overseas business expansion fell short of expectations; development of new industries fell short of expectations; risk of exchange rate fluctuations.