The 24Q1 railway equipment business saw a high increase in revenue, driving CRRC's net profit up 63.86% year on year. In 2024, CRRC achieved revenue of 32.183 billion yuan (yoy -0.60%, qoq -64.72%), net profit to mother of 1,008 billion yuan (yoy +63.86%, qoq -81.87%), deducting 668 million yuan (yoy +228.08%). We expect the company's return EPS in 24-26 to be 0.47/0.50/0.53 yuan, respectively, and the corresponding PE is 15.10/14.05/13.43 times. Comparatively, iFind consistently anticipated an average PE value of 15.3 times in 24. 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 8.46 yuan/6.40 HKD, maintaining a “buy” rating.
The revenue structure was adjusted in Q1 in '24, and both gross margin/net margin rose. In Q1, the company achieved revenue of 32.183 billion yuan/yoy-0.60 pct, and net profit to mother of 1,008 billion yuan/yoy +63.86%, mainly due to changes in the company's product structure and gross profit growth in the current period. The company's gross profit margin was 24.92% /yoy+0.31pct, and the net profit margin was 4.72% /yoy+1.49pct, both rising. The company's sales expense ratio is 4.62% /yoy+0.63pct, management expense ratio 8.72% /yoy+0.76pct, financial expense ratio -0.17% /yoy-0.60pct, R&D expense ratio 7.58% /yoy+1.17pct, and the overall cost rate increased slightly.
The volume of EMU sales in the first quarter led to a high increase in revenue from the railway equipment business. The revenue of CRRC's railway equipment business declined slightly to 13.316 billion yuan in 24Q1, yoy +54.11%, mainly due to increased EMU and bus revenue. Among them, locomotive business revenue was 2,435 billion yuan (2,559 million yuan for the same period last year), passenger car business revenue of 775 million yuan, EMU business revenue of 7.948 billion yuan (3.732 billion yuan for the same period last year), and truck business revenue of 2,159 billion yuan. The revenue of the urban rail and urban infrastructure business was 5.53 billion yuan, yoy -24.33%. The revenue from the new industrial business was 12.18 billion yuan, yoy -19.32%, mainly due to a decrease in revenue from products such as wind power components and energy storage systems in the current period. The revenue of the modern service business was 1.15 billion, yoy -13.23%. From January to January 2024, the company signed a new order of about RMB 40.8 billion (international business contract amount of about RMB 6.3 billion).
Railway fixed asset investment supports new vehicle tenders, and advanced EMU repair is expected to continue to contribute to incremental performance growth. In 24, M1-M3 China's railway fixed asset investment reached 124.8 billion yuan, an increase of 9.86% over the previous year, and fixed asset investment continued to rise. In 2023, China Railway Group tendered a total of 164 350-kilometer EMUs, +78% over the same period last year. EMU tenders are picking up and are expected to rise steadily, driving the company's new EMU business revenue growth. From an inventory perspective, advanced EMU repairs have already ushered in an intensive period. 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 (108 grade 5 repair groups were tendered in '23). On March 4, '24, CRRC announced the signing of contracts for the period from December '23 to 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.