occurrences
On March 4, 2024, the company issued an order contract announcement: From December 2023 to March 2024, the company signed a total of about 34.89 billion yuan of orders, accounting for 15.7% of 2022 revenue, of which the EMU advanced repair contract amount was 14.78 billion yuan, accounting for 6.6% of 2022 revenue, and the order amount was large.
Management analysis
Level 5 EMU repairs have entered a period of explosion, and they are optimistic about a high increase in maintenance business. EMU operation requires level 5 maintenance for 4.8 million kilometers or about 12 years. According to the National Railway Administration, EMU ownership increased 200% in five years from 2011 to 2016, corresponding to the explosion period of level 5 maintenance in about 23 years. According to the China Railway Group Bidding Network, in 2024, 361 EMU advanced repair groups were first tendered, including 207 grade 5 repair groups. The scale of the first advanced repair tender exceeded the full year of 2023 (290 advanced repair groups in 2023, including 108 grade 5 repair groups). From December 2023 to March 2024, the company signed 14.78 billion yuan of EMU advanced repair orders, accounting for 6.6% of 2022 revenue, with a large order amount. Level 5 repairs will replace EMU parts on a large scale, and I am optimistic about the rapid growth of the company's EMU maintenance business.
Investment in railway fixed assets rose to an inflection point in 2023, passenger traffic reached a record high, and demand for rail transit equipment continued to recover. 1) Railway investment inflection point: According to the State Railway Administration, in 2023, the national railway completed fixed asset investment of 764.5 billion yuan, an increase of 7.5% over the previous year; 2) Passenger traffic recovery: According to the Ministry of Transport, China's railway passenger traffic gradually recovered in '23, reaching 3.86 billion passengers throughout the year, an increase of 130%. With the recovery of passenger traffic, China's EMU tenders picked up. China Railway Group 23 (“Fuxing” EMU with a speed of 350 kilometers per hour”) tendered 164 groups, +91% over the same period last year. Demand for rail transit equipment is picking up, and we are optimistic about the company's revenue growth in the new EMU vehicle construction business.
The executive meeting of the State Council is promoting the upgrading of rail transit equipment and is optimistic about the release of demand for railway equipment renewal.
On March 1, 2024, the executive of the State Council reviewed and approved the “Action Plan to Promote Large-scale Equipment Renewal and Trade-in of Consumer Goods”. The conference stated that fiscal, taxation, and financial policy support should be increased to promote the upgrading and transformation of transportation equipment in an orderly manner. Furthermore, the State Railway Administration recently proposed that it will improve the renewal subsidy policy in the future to basically eliminate old internal combustion locomotives by 2027. Encouraged by the policy, the pace of upgrading and replacing railway equipment is expected to accelerate, which is beneficial to the long-term revenue growth of the company's railway equipment business.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue in 23-25 to be 2407/2598/280.1 billion yuan, and net profit to mother will be 118.134/14.4 billion yuan. The corresponding PE is 16X/14X/13X, maintaining a “buy” rating.
Risk warning
Railway fixed asset investment falls short of expectations; overseas business expansion falls short of expectations; development of new industries falls short of expectations; risk of exchange rate fluctuations.