With high performance growth in Q1 in '24, CRRC announced on April 12, 2024, that it maintains the “buy” rating. It is expected to achieve net profit of 923 million yuan to 1,046 million yuan in Q1 in 2024, an increase of 308 million yuan to 431 million yuan over the previous year, and an increase of 50%-70% over the previous year.
The first quarter of 2024 is expected to achieve non-net profit deducted from mother of 583 million yuan to 706 million yuan, an increase of 379 million yuan to 502 million yuan, and an increase of 186%-246% over the previous year. We expect the company's return EPS in 24-26 to be 0.49/0.54/0.59 yuan, respectively, and the corresponding PE is 13.81/12.55/ 11.57 times. Comparatively, the average PE value of the company in 24 years was 14.6 times. Considering that the company is a global leader in rail transit equipment and has fully benefited from the recovery in EMU tenders and increased demand for maintenance and renewal under the equipment renewal policy, H shares are discounted by about 30% in the past year. We gave the company 18/12.6 times PE for 24-year A/H shares, corresponding to a target price of 8.82 yuan/6.78 HKD, maintaining a “buy” rating.
Railway fixed asset investment continued to gain strength, and the recovery in passenger traffic brought about a recovery in EMU tenders. In 2023, China's railway fixed asset investment totaled 764.5 billion yuan, an increase of 7.5% over the previous year, ushering in an inflection point in growth. In 2014, M1-M3 China's railway fixed asset investment reached a total of 124.8 billion yuan, an increase of 9.86% over the previous year, and fixed asset investment continued to rise. China's railway passenger traffic is gradually recovering. According to the National Bureau of Statistics, in 2023, China sent 3.685 billion passengers for the whole year, an increase of 128.8%; in 24, the national M1-M2 railway passenger traffic was 693 million, an increase of 36.2% over the previous year. Passenger traffic continues to exceed expectations. Repairs have led to a recovery in EMU tenders. In 2023, China Railway Group tendered a total of 164 350-kilometer EMUs, +78% over the same period. In comparison, China Railway Group will only purchase 83, 29.5, and 92 350-kilometer EMUs from 2020 to 2022. EMU tenders are picking up and are expected to rise steadily, driving the company's new EMU business revenue growth.
Advanced EMU repair is expected to continue to contribute to the increase in performance. CRRC announced a 14.8 billion EMU advanced repair contract. Advanced EMU repair has already ushered in an intensive period. From 2012 to 2015, China's railway train ownership grew rapidly, CAGR = 30.6%. China's EMU level 5 repair cycle is 480 ± 100,000 kilometers or 12 years, so China's EMUs are expected to enter a critical stage of advanced maintenance and renewal in 2024-2025. Advanced EMUs in China first appeared in 2020. The number of advanced maintenance groups in 2020-2023 was 98, 65, 198, and 209.25 respectively, of which 108 were grade 5 repair groups in '23, accounting for 37%. In January '24, China Railway Group issued the first tender notice for advanced EMU repairs. A total of 361 groups were tendered, including 207 grade 5 repair groups, accounting for 57%. On March 4, '24, CRRC announced the signing of contracts between December '23 and March '24, including 14.78 billion yuan of advanced EMU maintenance contracts. Advanced EMU repair is expected to continue to contribute to CRRC's performance growth.
Risk warning: Railway fixed asset investment falls short of expectations, and overseas business development falls short of expectations.