On March 28, 2024, the company released its 2023 annual report. In 2023, the company achieved revenue of 234.262 billion yuan (+5.08%) and net profit to mother of 11.712 billion yuan (+0.50% year over year); of these, Q4 achieved revenue of 91,226 billion yuan (+4.41% year over year) in a single quarter, achieving net profit of 5.60 billion yuan (-1.18% year over year).
Revenue from the railway equipment business increased sharply, and gross margin improved year-on-year. According to the company's announcement, in 2023, thanks to a sharp increase in EMU and bus business revenue, the company's railway equipment business achieved revenue of 98.191 billion yuan, an increase of 18.05% over the previous year. Benefiting from the increase in the share of the EMU business, the gross margin of the company's railway equipment business increased 0.77pct to 25.27% compared to 2022; in addition, the gross margin of the company's urban rail, urban infrastructure, and new industry business increased 0.56, 1.51pct to 21.29% and 19.14%, respectively, compared to 2022. The overall gross margin increased 1.05 pcts to 22.27% compared to 2022, improving profitability.
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 repair 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.
According to the China Railway Group Bidding Network, 361 EMU advanced repair groups were first tendered in 2024, of which 207 were grade 5 repair groups. The scale of the first advanced repair tender exceeded the whole of 2023 (290 advanced repair groups in 2023, of which 108 grade 5 repair groups). From December 2023 to March 2024, the company signed an advanced EMU repair order of 14.78 billion yuan, accounting for 6.6% of 2022 revenue, and the order amount was large. 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.
Railway investment continues to rise, passenger traffic is recovering, and demand for rail transit equipment continues to recover. 1) Railway investment: According to the State Railway Administration, the national railway fixed asset investment in 2023 was 764.5 billion yuan, +7.5% year on year; 1-2M24 national railway fixed asset investment was 65.2 billion yuan, +9.5% year-on-year, and the investment amount continued to rise. 2) Passenger traffic: According to the Ministry of Transport, China's railway passenger traffic reached 3.86 billion in '23, an increase of 130%. The number of 1-2M24 passengers carried 693 million railways across the country, an increase of 36.2% over the same period. As passenger traffic recovered, China's EMU tenders picked up. China Railway Group tenders for 164 EMUs (the “Fuxing” EMU with a speed of 350 kilometers per hour) in '23, +91% compared to 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.
We expect the company's revenue for 24-26 to be 2588/285/ 313.5 billion yuan, net profit to mother of 137/154/16.7 billion yuan, corresponding PE to 14X/12X/11X, maintaining a “buy” rating.
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.