Revenue for the first three quarters of 2023 increased by 5.51% year-on-year, maintaining the “buy” rating. CRRC released its three-quarter report. The first three quarters of 2023 achieved revenue of 143,035 billion yuan (yoy +5.51%), net profit of 6.152 billion yuan (yoy +2.06%), net profit of 4.948 billion yuan (yoy +17.2%), net profit of 4.948 billion yuan (yoy +17.2%). Q3 achieved revenue of 55.732 billion yuan in a single quarter (yoy +2.70%, qoq +1.47%) and net profit of 2,691 billion yuan (yoy -7.09%, q-5.41%). We expect the company's return to parent EPS in 23-25 to be 0.43/0.45/0.47 yuan, respectively, and the corresponding PE is 12.9/12.2/11.7 times. Comparable companies' average PE value for 23 years was 14.7 times. Considering that the company is the world leader in rail transit equipment, H shares are discounted by about 45% on the valuation of A shares in the past 3 years. We gave the company 15/8.5 times PE for 23 years, corresponding to the target price of 6.45 yuan/3.97 HK$3.97, maintaining the “buy” rating.
The railway equipment business performed well. Overseas orders increased by 62.77% year on year. The railway equipment business achieved revenue of 52.5 billion yuan (yoy +12.41%) in the first three quarters of 2023, including locomotive business revenue of 16.459 billion yuan, bus business revenue of 2,768 billion yuan, EMU business revenue of 21,658 billion yuan, and truck business revenue of 11.615 billion yuan. The urban rail and urban infrastructure business achieved revenue of 30.118 billion yuan (YOY -12.92%). The new industry business achieved revenue of 55.923 billion yuan (yoy +14.77%), mainly due to the increase in revenue from products such as energy storage equipment and general parts in the current period. The modern service business achieved revenue of 4.494 billion yuan (yoy -18.96%). From January to September 2023, the company signed new orders of about 211.5 billion yuan, an increase of 18.75% over the previous year, and signed new overseas orders of 37.6 billion yuan, an increase of 62.77% over the previous year.
The gross profit margin for 23Q3 was 22.94% /yoy+1.69pct, and the expense ratio increased. The company's overall gross margin for the first three quarters of 2023 was 21.82% /yoy+1.24pct, and the overall net profit margin for the first three quarters of 2023 was 5.61% /yoy-0.1pct; the overall gross margin for the 23Q3 quarter was 22.94% /yoy+1.69pct, and the overall net profit margin was 6.24% /yoy-0.52pct. In terms of the period expense ratio, in the first three quarters of 23 years, the company's sales expense ratio was 3.81% /yoy+0.65pct; management expense ratio was 6.37% /yoy+0.15pct; financial expense ratio -0.03% /yoy+0.2pct; and R&D expense ratio was 5.58% /yoy+0.05pct. The overall cost rate increased.
The gradual recovery of domestic railway investment/passenger volume/bidding boosts domestic demand, rapid development of overseas business, rapid development of vehicle procurement and maintenance, and the market is on the rise, which is expected to drive the steady development of the company's domestic rail transit business.
According to the State Railway Administration, in the first three quarters of 2023, the country's railways completed fixed asset investment of 508.9 billion yuan, an increase of 7.1% over the previous year; according to the Ministry of Transport, 2023Q3 national railways sent 1.15 billion passengers, an increase of 11.6% over 2019; China Railway Group tendered 103 EMUs in June 23, over 96 in 22 years. In 12-15, China's railway train ownership CAGR = 30.6%. China's EMU grade 5 repair cycle is about ten years. Demand for grade 5 repairs is expected to increase dramatically after 22 years. In October '23, the company issued an announcement to reach a cooperation framework agreement or contract for train sales with relevant departments in Kazakhstan, Chile, Serbia and other countries, and overseas business developed rapidly.
Risk warning: The risk of macroeconomic fluctuations, railway fixed asset investment falls short of expectations, and overseas business development falls short of expectations.