Investment advice: The company is a global leader in rail transit equipment. The “Large-scale Equipment Renewal Plan” promotes the acceleration of the construction and renewal of the rail transit industry, is optimistic about the company's future performance growth, and drives improved profitability.
The estimated net profit for 2023-2025 is RMB 122.10/137.19/RMB 15.235 billion, and the corresponding EPS is RMB 0.43/0.48/0.53. Taking into account PE and PB valuations, the company was given a target price of 6.99 yuan, corresponding to HK$7.59, and an increase in holdings rating.
The “Large-scale Equipment Renewal Plan” promotes the development of the industry, and rail transit leaders are expected to benefit deeply. On March 7, 2024, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”. The document mentions that by 2027, the scale of investment in equipment in the industrial, agricultural, construction, transportation, medical and other fields will increase by more than 25% compared to 2023; the energy efficiency of major energy equipment in key industries has basically reached the energy saving level, and the production capacity ratio of environmental performance reaching Class A level has increased dramatically. Policy incentives are expected to accelerate the pace of rail transit equipment renewal, and CRRC, the rail transit leader, is expected to achieve long-term steady revenue growth in the railway equipment business.
The rail transit industry cycle will drive a boost in demand, and the industry will usher in a larger space for renewal and replacement.
1) Passenger traffic recovered markedly in 2023. The annual railway passenger traffic volume rose 130% year on year, and it is expected that railway passenger transportation demand will continue to be released; 2) Railway investment has entered the recovery stage. According to the main indicators of “14th Five-Year Plan” transportation development, railway mileage will reach 165,000 kilometers in 2025, which is expected to have strong momentum for future industry investment; 3) Demand for advanced EMU maintenance is about to be released rapidly. The company's high share of the market share in the industry will effectively support future performance growth.
Rail transit leaders have obvious advantages, creating a new ecosystem for the production chain. As a leading global rail transit equipment company, CRRC has a long and deep upstream and downstream industrial chain. It is a jewel formed by integrating many high-precision industries. With its advantages in the industrial chain, the company continues to lay out R&D investment, and is expected to drive the company's performance to continue to grow.
Risk warning: Risk of fluctuations in raw material prices, risk of demand cycle fluctuations falling short of expectations.