The Zhitong Finance App learned that Open Source Securities released a research report saying that the Times Electric (03898) rail transit equipment business is expected to benefit from the equipment renewal policy, and the emerging equipment business will establish a second growth curve and maintain a “buy” rating. Considering the increase in profit margins due to increased capacity utilization and yield of the company's power products, the bank raised the 2024 net profit forecast from 3.3 billion yuan to 3.6 billion yuan, maintained the 2025 net profit forecast of 4 billion yuan, and added the 2026 net profit forecast of 4.5 billion yuan, corresponding to the year-on-year growth rate of 15%/11%/13% for 2024 to 2026, respectively.

The report's main points are as follows:

Railway maintenance business is expected to benefit from rapid growth in old equipment renewal trends in 2024

In 2023, the traditional rail transit equipment business achieved revenue of RMB 12.9 billion, an increase of 2% over the previous year. Among them, the revenue from new rail transit construction is about 11.1 billion yuan, and the revenue from rail transit maintenance is about 1.8 billion yuan. We expect revenue growth from the new construction business to slow down in the future, while maintenance revenue is expected to continue to grow rapidly:

(1) Considering the high base of the new railway construction business and that the new urban rail construction business is still mainly based on the increase or extension of existing urban subway lines, we expect the growth rate of the company's new construction business to slow down in the future.

(2) The railway maintenance business is expected to benefit from the rapid growth trend of replacing old equipment. The company expects the EMU maintenance market to enter a period of rapid growth. The growth rate will exceed 50% in the next two to three years. The company will maintain a market share of about 50% in the EMU maintenance market, and the benefits are quite certain.

(3) Urban rail lines in places such as northern Guangshen are gradually entering the latter stage of the life cycle, spawning maintenance demand. Due to the current lack of uniform market standards for mandatory maintenance, we expect the growth rate of urban rail maintenance revenue to be lower than that of major railway maintenance.

In 2024, the emerging equipment business may continue to expand, benefiting from increased production capacity investment and yield increases

In 2023, the revenue of the emerging equipment business was 8.7 billion yuan, up 70% year on year, and the gross profit margin was 28.2%, up from 25.7% in 2022, benefiting from the semiconductor sector's increased capacity utilization and yield, and lower procurement costs. Demand for the emerging equipment business is still strong, and the bank expects the business to continue its high growth trend in 2024-2026. Let's take a closer look:

(1) Power semiconductor revenue increased 69% year-on-year in 2023. As the company's IGBT Yixing production line completes the installation of equipment and gradually starts production in 2024 to contribute output value, the bank expects IGBT revenue to maintain high growth. The automotive IGBT business is expected to maintain a stable market share, the power grid IGBT business is expected to benefit from active planning by the national grid, and wind power and photovoltaics are expected to increase their market share and drive faster growth.

(2) Revenue from the electric drive business, marine engineering, industrial conversion, and sensor business increased 75%/68%/74%/45% year-on-year respectively in 2023.

Risk warning: New energy vehicle penetration falls short of expectations, competition in the IGBT industry intensifies, and R&D progress falls short of expectations.