Emerging equipment drives performance to new highs and improving profitability
Times Electric's performance reached a new high in 2023; achieved operating income of 21.8 billion yuan, an increase of 20.9% year on year, mainly due to a sharp year-on-year increase in revenue from the emerging equipment business, which includes products such as power semiconductors, electric drives for new energy vehicles, photovoltaic inverters, etc.; achieved net profit of 3.11 billion yuan, an increase of 21.5% year on year; and revenue per share of 2.19 yuan. Comprehensive gross margin was 33.9%, up 1.2 percentage points year on year; net margin was 14.5%, up 0.1 percentage point year on year. The company plans to pay a dividend of 0.78 yuan per share, with a dividend rate of about 35%.
The revenue from the rail transit equipment business is rising steadily
In 2023, the company's rail transit equipment products achieved revenue of 12.91 billion yuan, an increase of 2.0% over the previous year. Among them, the revenue of rail transit electrical equipment/rail construction machinery/communication signals/other rail transit equipment was RMB 102.3/16.9/6.6/3.3 billion, respectively, with year-on-year changes of +4.8%/-1.1%/+0.4%/-37.1%, respectively. In 2023, the company's urban rail traction system led the domestic market share for 12 consecutive years and remained above 50%; maintenance and overseas business continued to advance, winning orders from Asia, Europe and America; the communication signal business progressed steadily, and the city rail traffic signal business won the bid for five lines in 2023, reaching a record high; the FAO system and the urban subway signal system both achieved the first breakthrough. With the recovery of the market and continuous breakthroughs in overseas markets and new products, the company's rail transit equipment business orders are expected to continue to recover.
The company will benefit deeply from rail transit equipment updates and increased EMU maintenance demand. On February 28, 2024, Fei Dongbin, director of the State Railway Administration, mentioned while attending the press conference of the State Information Office on high-quality transportation development services in Chinese style modernization, that it is necessary to vigorously promote the application of new energy railway equipment, formulate emission standards and management measures for internal combustion locomotives, improve and update subsidy policies, accelerate the promotion and application of new energy locomotives, and strive to achieve basic elimination of old internal combustion locomotives by 2027. Old internal combustion locomotives are expected to be upgraded on a large scale, and the company, as one of the main suppliers of locomotive traction systems, will benefit deeply.
On March 4, 2024, CRRC announced that it recently signed an EMU advanced repair contract of 14.78 billion yuan, which exceeds the total amount of similar business contracts in 2023. We believe that demand for post-cycle EMU maintenance will continue to increase in the future. In particular, demand for advanced repair represented by Level 5 repair will grow rapidly. As one of the main suppliers of EMU traction systems, the company will benefit significantly from the rapid growth in demand for Level 5 repair.
The emerging equipment business is developing rapidly, and revenue has increased dramatically
In 2023, the company's emerging equipment products achieved revenue of 8.73 billion yuan, an increase of 69.6% over the previous year. Among them, the revenue of power semiconductor devices/industrial conversion products/new energy vehicle electric drive systems/sensor devices/offshore equipment was 31.08/23.88/19.09/5.94/733 billion yuan respectively, up 69.4%/73.8%/74.7%/45.2%/67.7%, respectively. Driven by the “dual carbon” policy, industries such as electric drive systems for new energy vehicles, semiconductor devices, and sensors are developing rapidly, and the company's emerging equipment business segment will continue to maintain rapid growth.
Power semiconductors consolidate their leading edge, and production expansion projects advance rapidly
In 2023, the company's power semiconductor devices achieved revenue of 3.108 billion yuan, an increase of 69.4% over the previous year. According to the annual report, the company's IGBT module delivery has a large market share in rail transit and power grids, with the largest share in the country, quickly breaking through the new energy market; the Phase III semiconductor project is progressing rapidly, and the Yixing production line has completed the capping of the main project, and we expect to start contributing to performance in '24. The company has a full set of independent technologies for chips, modules, components and applications in the semiconductor field; the production of a full range of high-reliability IGBT products has broken foreign monopolies on rail transit and UHV transmission devices, and is currently solving the problem of core device autonomy for China's new energy vehicles and new energy power generation equipment. According to the annual report, according to NE Times statistics, the company entered the top three in the industry for passenger car power module installations in 2023, with a market share of 12.5%.
Delivery volume of electric drives for new energy passenger vehicles continues to grow
In 2023, the company's NEV electric drive system achieved revenue of 1.91 billion yuan, a significant increase of 74.7% over the previous year.
According to the annual report, the company's sales ranking of new energy passenger vehicle electric drive systems continued to rise. Among them, the annual installed volume of automotive electric drive systems exceeded 248,000 units, ranking in the top six in the industry. The market share grew rapidly. It received new orders from high-quality customers such as BAIC and SAIC Motor, exported more than 20,000 sets of overseas products, and completed the development of various 70-120kw products.
The strong rise of photovoltaic inverters led to a sharp increase in industrial conversion revenue of the company's industrial conversion revenue of 2.39 billion yuan in 2023, a sharp increase of 73.8% over the previous year, and orders maintained a sharp increase. According to the annual report, the company is in a leading position in the industry in segments such as electric drives for mining trucks, air conditioning inverters, etc., and is actively expanding the new energy equipment business such as photovoltaic inverters, wind power converters, energy storage converters, and hydrogen power supplies. Among them, photovoltaic inverters continued to expand the market, with a bid of 17 GW in mid-23, and the domestic ranking entered the top three in the industry. Mine truck electric drive systems, wind power converters, and central air conditioning converters continued to be delivered in batches and received new orders.
Maintain a “buy” rating
The company's emerging industries performed well. Revenue from power semiconductors, automotive electric drives and photovoltaic inverters increased dramatically, and the rail transit business is expected to return to rapid growth. We then raised the company's 24-25 net profit forecast of 8.5%/11.4% to 37.0/4.30 billion yuan, and introduced the 26-year net profit forecast of 4.81 billion yuan, corresponding to 24-26 EPS of 2.61/3.04/3.40 yuan, respectively. We believe that demand for the company's rail transit products is expected to pick up in the future; production capacity in new industries such as power semiconductors, electric drives for new energy vehicles, and inverters continues to expand, and there is huge room for growth, which has an effect on improving the company's valuation and is worth focusing on; maintaining the “buy” ratings of the company's A shares and Hong Kong stocks.
Risk warning: risk of rail transit investment fluctuation, risk of poor development of new industries, increased risk of industry competition