Investment event: The company discloses its 2024 quarterly report. 2024Q1 achieved operating income of 6.509 billion yuan, a year-on-year decrease of 13.10%; realized net profit of 604 million yuan, a year-on-year decrease of 10.84%; and realized deducted non-net profit of 594 million yuan, a year-on-year decrease of 10.29%.
First-quarter results continued to be under pressure. By business, railway business revenue in the first quarter was 3.558 billion yuan, down 9.68% year on year; urban rail business revenue was 1,615 billion, down 7.23% year on year; overseas business was 179 million, down 34.89% year on year; and general engineering contracting business revenue was 1,144 billion yuan, down 24.62% year on year. The total revenue of the rail transit control business (railway+urban rail+overseas) was 5.352 billion yuan, down 10% year on year, slightly lower than expected.
The revenue structure continues to be optimized, and profitability is further improved. The 24Q1 company's comprehensive gross profit margin was 27.41%, +4.61pct year-on-year, mainly due to the contraction of the low-margin engineering business. Q1 The company's net profit margin was 10.95%, +0.58pct year-on-year, and +2.35pct month-on-month. All four of the company's expense ratios have increased, mainly due to the fact that revenue decline is relatively fixed. Among them, sales expenses rate/ management expenses rate/ R&D expense rate/ financial expense ratios were 2.66%/7.46%/5.75%/-0.37%, respectively, +0.39pct/+1.29pct/+1.67pct/+0.38pct, respectively.
Judging from the new orders, the company's performance is expected to remain stable for the next two years. The company's engineering business strategy is shrinking and profitability is low, contributing less to the company's performance. The company's rail traffic control system business order cycle is long, usually 2-3 years. The amount of new orders signed by the company for rail transit control systems in 2021-2023 was 39.258 billion yuan, 39.176 billion yuan, and 42,032 billion yuan respectively, up -4%, 0% and 7% year-on-year. Judging from order estimates, the company's performance is expected to remain stable for the next two years. In 2024, the company signed new orders of 11.361 billion yuan, a year-on-year decrease of 17.07%. Among them, the rail transit control system business signed a total of 6.835 billion new orders, a year-on-year decrease of 18.29%, mainly due to the low number of urban rail orders in Q1 in '24. By sector, 3,985 billion new orders were signed in the railway sector, +10.13% year on year; 1,524 billion new orders were signed in the urban rail sector, -55.41% year on year; and 1,326 billion new overseas orders were signed, -0.24% year on year.
The need for modernization is expected to bring new flexibility to the company's business. The new rail traffic control system construction business is related to mileage. It is expected that the railway market will stabilize in the future, and the trend in the urban rail market will decline, but the gradual release of the upgrading and transformation business (10-15 years entering the renewal period) is expected to bring new flexibility. It is estimated that over 10,000 kilometers of high-speed rail control systems will enter the renewal cycle in the next 5 years. Based on a cost of 4.5 million per kilometer, a total market of more than 45 billion dollars will be released. In terms of the urban rail market, the mileage of more than 10 years is 2,539 kilometers. Based on a cost of 14 million per kilometer, the total market space exceeds 34 billion.
Entering the field of air traffic control in the low-altitude economy, it is expected to create a new growth pole. As a national team in the field of intelligent traffic control, China Express has a technical extension foundation in low-altitude airspace management. At present, the company has established Tonghao Low Altitude Economy (Hefei) Technology Co., Ltd., started all-round cooperation with Hefei City on key elements such as technology, capital, platforms and standards, and signed a “track+low altitude” strategic cooperation agreement with Suzhou Rail Group.
As one of the new directions for the company's future business expansion, the low-altitude economy is expected to become a new growth pole.
Profit forecast and investment suggestions: The company is expected to achieve net profit of 3,530 billion yuan, 38.17 billion yuan, and 4.356 billion yuan respectively in 2024-2026, corresponding EPS of 0.33, 0.36, and 0.41 yuan, corresponding to PE of 17 times, 15 times, and 14 times, maintaining the recommended rating.
Risk warning: risk of economic recovery falling short of expectations, risk of new product expansion falling short of expectations, risk of rapid iteration of core technology, risk of increased market competition, etc.