Investment event: The company discloses its 2024 quarterly report. In the first quarter of 2024, the company achieved revenue of 32.183 billion yuan, a year-on-year decrease of 0.60%; net profit to mother was 1,008 billion yuan, up 63.86% year on year; net profit after deducting non-return to mother was 668 million yuan, an increase of 228.08% year on year.
The company's performance increased in the first quarter. The company's performance increased significantly in the first quarter of 2024, mainly due to the smooth delivery of EMUs. By sector, 24Q1's railway equipment business revenue was 13.317 billion yuan, +54.11%, of which locomotive/bus/EMU business revenue was 24.35/7.75/79.48/2,159 billion yuan, respectively -4.85%/+353.22%/+112.97%/-0.92%; urban rail and urban infrastructure business revenue was 5.531 billion yuan, -24.33%; revenue from new industries was 12.183 billion yuan, -19.32% year on year; revenue from modern service business $1.152 billion, -13.23% YoY Contract debt was 24.775 billion yuan, an increase of 106.60% year over year.
Profitability levels increased, and cash flow performance was excellent. The 24Q1 company's gross margin was 24.92%, +3.41pct/month-on-month, mainly due to changes in revenue structure and significant growth in the railway equipment business with a high gross margin. The company's net interest rate was 4.72%, +1.49pct/-2.46pct y/y. On the cost side, the company's three expense ratios were relatively stable. The sales expense rate/ management expense rate/ financial expense ratio were 4.62%/8.72%/-0.17%, respectively, +0.63pct/+0.76pct/-0.60pct; the R&D cost rate increased 1.17pct to 7.58% year over year. Thanks to the smooth delivery of the company's train fleet, the company's repayment situation was good in 24Q1, with a net operating cash flow inflow of 14.488 billion yuan. This is the first time since 14Q1 that a net operating cash flow inflow was achieved in the first quarter.
Demand for new high-speed rail construction and maintenance resonates, and demand for locomotives and trucks benefits from equipment updates and transit. 1) In the first quarter, railways across the country completed fixed asset investment of 124.8 billion yuan, an increase of 9.9% over the previous year; they sent 1,014 million passengers, an increase of 28.5% over the previous year. Among them, the cumulative number of visitors sent during the Spring Festival travel season and Qingming holiday increased by 18.8% and 19.6%, respectively, compared with the same period in 2019. The recovery in the rail transit industry will drive up demand for new high-speed rail train sets. It is estimated that the average annual opening of new high-speed rail traffic from 2024-2025 will remain above 2,500 kilometers, and the average annual demand for EMUs will exceed 200 trains in the future. 2) The huge stock of railway vehicles is in need of renewal and maintenance, and it is expected that it will be gradually released. The first 323 advanced repairs in '24 exceeded expectations, including 28 grade 3 trains, 93 grade 4 trains, and 202 grade 5 trains. 3) 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, and also proposed public transit to rail, which is expected to promote an increase in railway freight volume. The director of the Railway Administration said that efforts will be made to basically eliminate old internal combustion locomotives by 2027. As of 2023, China has 22,400 railway locomotives, including 7,800 internal combustion locomotives, of which old locomotives account for about half. The successive implementation of a series of equipment renewal policies will accelerate the transformation of old internal combustion locomotives and boost demand for locomotives and trucks.
The company is full of orders, supporting steady growth in performance. From December 2023 to March 2024, the company signed an EMU purchase order of 11.17 billion yuan; it also received an EMU advanced repair order of 14.78 billion yuan, which is double that of the full year of 2023. In the first quarter, the company signed new orders worth 40.8 billion yuan, including 6.3 billion yuan for overseas orders. China Railway Group's tender is expected to start soon, which is expected to further boost the company's annual order and delivery volume.
Profit forecast and investment suggestions: We believe that the equipment update+railway passenger and cargo volume+overhaul cycle will boost the railway equipment boom. As a global leader in rail transit equipment, the company's performance flexibility is expected to be unleashed. The company is expected to achieve net profit of 14.157 billion yuan, 16.711 billion yuan, and 19.708 billion yuan respectively in 2024-2026, corresponding EPS of 0.49, 0.58, and 0.69 yuan, and corresponding PE of 14 times, 12 times, and 10 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., risk of overseas market expansion falling short of expectations.