Brief performance review
On April 29, 2024, the company released its quarterly report for the year 24. The 24Q1 quarter achieved revenue of 32.183 billion yuan (-0.6% YoY), net profit to mother of 1,008 billion yuan (+63.86% YoY), and net profit after deduction of 668 million yuan (+228.08% YoY), with a high increase in operating performance.
Management analysis
First-quarter results were high, and gross margin increased significantly. According to the company's announcement, in the first quarter of 2024, thanks to a 54.11% year-on-year increase in revenue from the company's relatively high profit margin, the company achieved a gross profit margin of 24.92% in 1Q24, an increase of 3.41 pct over 1q23, and an increase of 1.96 pct over 4q23. 1Q24 achieved net profit of 1,008 billion yuan, a year-on-year increase of 63.86%, and a high increase in operating performance.
Level 5 EMU maintenance has entered a period of explosion, and it is optimistic that maintenance business will increase in 2024. EMU operation requires level 5 maintenance for 4.8 million kilometers or about 12 years. According to the National Railway Administration, EMU ownership increased 200% in five years from 2011 to 2016, corresponding to the explosion period of level 5 maintenance in about 23 years. According to the China Railway Group Tendering Network, 361 EMU advanced repair groups were first tendered in 2024, of which 207 were grade 5 repair groups. The scale of the first advanced repair tender exceeded the full year of 2023 (290 advanced repair groups in 2023, of which 108 grade 5 repair groups). From December 2023 to March 2024, the company signed an advanced EMU repair order of 14.78 billion yuan, accounting for 6.6% of 2022 revenue, and the order amount was quite large. Level 5 repairs will replace EMU parts on a large scale, and I am optimistic about the rapid growth of the company's EMU maintenance business.
Railway investment continues to rise, passenger traffic is recovering, and demand for rail transit equipment continues to recover. 1) Railway investment: According to the State Railway Administration, in 2023, the national railway fixed asset investment was 764.5 billion yuan, +7.5% year on year; 1-3M24 national railway fixed asset investment was 124.8 billion yuan, +9.9% year over year, and the investment amount continued to rise. 2) Passenger traffic: According to the Ministry of Transport, China's railway passenger traffic reached 3.86 billion in '23, an increase of 130%. The passenger capacity of the 1-3M24 national railway was 1,014 million, an increase of 28.5% over the same period. As passenger traffic recovered, China's EMU tenders picked up. China Railway Group tenders for 164 EMUs (the “Fuxing” EMU with a speed of 350 kilometers per hour) in '23, +91% compared to the same period. Demand for rail transit equipment is picking up, and we are optimistic about the company's revenue growth in the new EMU vehicle construction business.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue in 24-26 to be 2588/285/ 312.8 billion yuan, net profit to mother of 137/154/16.7 billion yuan, corresponding PE to 15X/13X/12X, maintaining a “buy” rating.
Risk warning
Railway fixed asset investment falls short of expectations; overseas business expansion falls short of expectations; development of new industries falls short of expectations; risk of exchange rate fluctuations.