Trade-in is imminent; the second growth curve for emerging equipment realized the 2023 Era Electric revenue of 21.8 billion yuan (yoy +20.9%); net profit to mother of 3.11 billion yuan (yoy +21.5%). The seasonal peak of rail transit led 4Q23 to achieve revenue of 7.70 billion yuan (yoy +7.6%; qoq +39.4%) and net profit of 1.05 billion yuan (yoy +6.0%; qoq +17.1%). We believe that this round of rail exchange and rising production capacity for emerging equipment is expected to drive revenue growth of 18.4%/19.2%/12.7% year-on-year in 2024-2026. At the same time, considering the intensification of market competition in the company's power semiconductors/electric drives for new energy vehicles, etc., we lowered the company's net profit forecast for 2024 by 4% to 3.29 billion yuan, and predicted net profit to mother of 38.6/4.22 billion yuan in 2025/2026. Based on SOTP, we gave 25/20x 2024E PE (previous value: 25/19x) to emerging business/rail transit and other businesses, respectively, with an average value of 23.6/19.2x (previous value: 21/16x). The premium margin adjustment was mainly due to increased competition in emerging businesses and the restoration of the rail transit valuation center, and adjusted the target price of A shares to 49.95 yuan. Based on the historical average AH premium rate of 81.1% since listing, the target price of Hong Kong stocks was adjusted to HK$30.03 to maintain the purchase rating.
Rail transit: It is expected to benefit from the advent of the internal combustion locomotive trade-in and maintenance cycle. The 2023 era electric rail transit business revenue was 12.91 billion yuan, an increase of 2.0% over the previous year. Among them, rail transit electrical equipment/rail construction machinery/communication signal systems/other rail transit equipment revenue was RMB 102.3/16.9/6.6/330 million yuan, +4.8%/-1.1%/+0.4%/-37.1% compared with the same period last year. On 2/28, the Ministry of Railways said it will accelerate the promotion and application of new energy locomotives and strive to basically eliminate old internal combustion locomotives by 2027. On 3/1, the executive of the State Council reviewed and approved the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”. We believe that the company's rail transit business is expected to benefit from the advent of this cycle of trade-in and maintenance of rail transit equipment and achieve steady growth.
Emerging equipment: Yixing Phase III progressed rapidly, and the second automotive/photovoltaic growth curve realized the 2023 Era Electric Emerging Equipment business revenue of 8.73 billion yuan, an increase of 69.6% over the previous year. Among them, revenue from power semiconductors/industrial conversion/new energy vehicle electric drives/offshore equipment was 31.1/23.9/19.1/73 billion yuan, up 69.4%/73.8%/74.7%/67.9% year-on-year. According to the NE era, the company's installed capacity of power modules for new energy vehicles in '23 was 1.06 million, ranking third; photovoltaic inverters won the bid of over 17 GW, ranking in the top three in the country; 248,000 electric drives were installed, ranking in the top six in the industry. We are optimistic that the company's Yixing Phase III project will advance rapidly and maintain rapid growth in downstream grid/new energy vehicles/photovoltaics.
Adjust the target price for A/H to HK$49.95/HK$30.03, and maintain our estimated net profit from the purchase of 2024E emerging business/rail transit and other assets of $972/2,322 million. Based on SOTP, we gave the emerging business/rail transit and other 25/20x 24E PE (previous value: 25/19x), which is comparable to the average value of 23.6/19.2x (previous value: 21/16x). The premium adjustment was mainly due to increased competition in emerging businesses and the restoration of the rail transit valuation center, and the target price for A-shares was adjusted to 49.95 yuan. Based on the historical average AH premium rate of 81.1% since listing, the target price of Hong Kong stocks was adjusted to HK$30.03 to maintain the purchase rating.
Risk warning: The risk of a downturn in the semiconductor cycle; the risk that demand for new energy vehicles, photovoltaics, etc. does not meet expectations.