1Q24's net profit exceeded expectations. I am optimistic that rail transit business maintenance+trade-in will drive 1Q24 Era Electric's revenue to grow by 3.93 billion yuan, up 27.2% year on year; gross profit margin of 34.1%, +1.64pct year on year; net profit of 570 million yuan, up 30.4% year on year, exceeding our expectations (50 billion yuan). The main reasons: 1) Rail transit business revenue was successfully implemented, leading to a 43.7% year-on-year increase in rail transit business revenue; 2) The increase in rail transit business share led to a increase in profitability growth. Considering that rail transit is entering a large-scale maintenance cycle+trade-in, we raised our 2024/2025/2026 net profit forecast by 10%/12%/12%. We expect the net profit of emerging business/ rail transit and other 24E shares to be $951/2,660 million, respectively, with 30/22x 24E PE (average value of 26.7/20.1x). The premium margin adjustment is mainly due to the rail transit business driving the growth of emerging businesses such as half-body and electric drives, and building a moat. Based on the historical average AH premium rate of 64.71%, the target price for A/H shares will be adjusted to 61.66/ HK$40.76 (previous value: 49.95 yuan/HK$30.03 shares), maintaining the A/H “buy” rating .
Rail transit: I am optimistic that EMU maintenance will enter a period of rapid growth. Concerned about the trade-in policy 1Q24, the company's rail transit business revenue increased by 43.7% year on year. Among them, rail transit electrical equipment/rail construction machinery/communication signal system revenue increased 29.0%/468.4%/42.0% year on year. Mainly because EMU maintenance entered a period of rapid improvement, the company's bidding and delivery progressed smoothly. We believe that the company has strong technical reserves and market competitiveness in the field of rail transit maintenance. With the advent of the major maintenance period, the company is expected to enter the second round of rapid development. Furthermore, the equipment trade-in policy is gradually becoming clear. We are optimistic about the company's rail transit business maintenance+trade-in two-wheel drive.
Emerging equipment: The rail transit business led to the growth of emerging businesses such as semiconductors and electric drives, and the revenue of the emerging equipment business of the building moat 1Q24 increased 13.2% year on year. Among them, power semiconductors/new energy vehicle electric drives/industrial conversion revenue increased 22.4%/10.8%/15.4% year on year, and sensor parts fell 48.6% year on year, mainly due to increased market competition. We believe that the company's emerging business will face intense price pressure in 2024, but the company's rail transit business is expected to radiate to drive growth in power semiconductors, electric drives and other businesses and build a moat for industrial integration.
The target price for A/H shares was raised to HK$61.66/ HK$40.76, maintaining the “buy” rating. We expect net profit from emerging businesses/rail exchanges and other 2024E to mother of $951/2,660 million. Based on SOTP, we gave 30/22x 2024E PE to emerging business/rail transit and other businesses respectively, with an average value of 26.7/20.1x. The premium margin adjustment was mainly due to the company's rail transit business driving the growth of emerging businesses such as semiconductors and electric drives, building a moat, and adjusting the target price for A shares to 61.66 yuan (previous value: 49.95 yuan).
Based on the historical average AH premium rate since listing of 64.71%, the target price of Times Electric H shares was raised to HK$40.76 (previous value: HK$30.03). Maintain a “buy” rating for A/H shares.
Risk warning: The risk of a downturn in the semiconductor cycle, and the risk that demand for new energy vehicles, photovoltaics, etc. will not meet expectations.