Investment event: The company disclosed its 2024 quarterly report. 2024Q1 achieved operating income of 3,925 billion yuan, an increase of 27.20% over the previous year; realized net profit of 568 million yuan, an increase of 30.44% over the previous year; and realized deducted non-net profit of 461 million yuan, an increase of 44.85% over the previous year.
Performance growth is steady, and rail transit business is growing rapidly. By sector, the company's rail transit business revenue was 2.120 billion yuan, up 43.74% year on year. All business segments achieved relatively rapid growth. Among them, rail transit electrical equipment/rail construction machinery/ communication signal system revenue was 16.17/2.95/143 million yuan, up 28.95%/468.37%/42.00% year on year. Revenue from the emerging equipment business was 1,769 billion yuan, up 13.18% year on year, of which power semiconductor devices/electric drive systems/industrial conversion/ offshore equipment revenue was 8.34/3.75/2.98/202 million yuan, up 22.44%/10.82%/18.35%/15.39% year on year, and sensor device revenue was 60 million yuan, down 48.62% year on year. The size of the company's contract liabilities has been rising steadily, increasing 125 million yuan to 866 million yuan in 24Q1 compared to the end of 2023.
The net interest rate improved month-on-month, and the overall expense ratio remained stable during the period. The gross margin of the 24Q1 company was 34.06%, +1.64pct/month-on-month, and -2.45pct, mainly due to changes in product structure; the net margin was 14.71%, +0.21pct/month-on-month. The cost side was basically flat. The 24Q1 sales/management/finance expense ratio was 6.41%/4.46%/-1.25%, +0.66pct/-0.49pct/+0.32pct; the R&D expense ratio was 11.65%, -0.38pct year on year.
The rail transit equipment business benefits from industry recovery and large-scale equipment upgrades. The recovery in railway passenger traffic exceeded expectations. In the first quarter of this year, railways across the country sent 1,014 million passengers, an average of 11.147 million passengers per day, an increase of 28.5% over the previous year. Among them, the cumulative number of passengers sent during the Spring Festival travel season increased by 18.8% compared to the same period in 2019; the cumulative number of passengers sent during the Qingming holiday period increased 19.6% over the same period in 2019. At the same time, the huge stock of railway vehicles is in need of renewal and maintenance. 323 trains were first tendered for advanced repairs in '24, over the whole of '23, including 28 grade 3 trains, 93 grade 4 trains, and 202 grade 5 trains. Subsequent demand for new construction and maintenance of high-speed rail trains will resonate upward. In February of this year, the Central Committee on Finance and Economics proposed large-scale equipment upgrades and reduction of logistics costs for the whole society, which will accelerate the transformation of old internal combustion locomotives and boost demand for locomotives and trucks. The company is a leading domestic rail transit traction system. Its products cover various models such as locomotives, trains, and urban rail. The market share remains at the top. Against the backdrop of a recovery in the rail transit industry, the company's rail transit equipment business is expected to show flexibility in performance throughout the year.
The expansion of production capacity is progressing smoothly, and the emerging equipment business continues to gain strength. The gross margin of the company's emerging equipment business rebounded to 28.19% in '23, accounting for 40.06% of revenue, and the share of revenue from the emerging equipment business further increased to 45.07% in 24Q1. The company's IGBT module market share is leading, the semiconductor phase III project is progressing rapidly, and the Yixing production line has completed the capping of the main project. As the company's production capacity is gradually invested and capacity utilization and yield continue to increase, the emerging equipment business will maintain high growth.
Profit forecast and investment advice: The company is expected to achieve net profit of 3.829 billion yuan, 4.411 billion yuan, and 4.09 billion yuan respectively in 2024-2026, corresponding EPS of 2.71, 3.12, and 3.47 yuan, corresponding to PE of 18 times, 16 times, and 14 times, maintaining the recommended rating.
Risk warning: risk of investment in fixed assets falling short of expectations, risk of new product expansion falling short of expectations, risk of increased market competition, etc.