1Q24 Results Exceed Expectations
The company announced 1Q24 results: revenue of 32.183 billion yuan, a year-on-year decrease of 0.6%; net profit to mother was 1,008 billion yuan, up 63.9% year on year. The performance exceeded our expectations, mainly due to the increase in inter-period EMU delivery and the high level of business profit.
Railroad equipment revenue has increased dramatically. 1Q24's railway equipment revenue was 13.317 billion yuan, an increase of 54% over the previous year, mainly due to the increase in EMU business delivery. 1Q24 EMU revenue increased 113% year over year to 7.948 billion yuan, bus revenue increased 3.5 times year over year to 775 million yuan, and locomotive and truck revenue decreased 4.8%/0.9% year on year to 2,435/2.59 billion yuan. Urban rail business revenue was 5,531 billion yuan, down 24% year on year, revenue from new industries was 12.183 billion yuan, down 19% year on year, and Hyundai service revenue was 1,152 billion yuan, down 13% year on year.
Significant increase in gross margin and optimization of cash payments. 1Q24's gross margin increased by 3.4ppt to 24.9% year-on-year, mainly due to the increase in the share of high-margin railway equipment, with EMU having the highest gross margin.
The company's expense ratio increased by 2ppt year-on-year during the 1Q24 period, sales, management, and R&D expenses increased 0.6/0.8/1.2ppt year-on-year, and the financial expense ratio decreased by 0.6ppt. The company's net profit margin increased 1.2ppt to 3.1% year-on-year in 1Q24. The net cash inflow from 1Q24's operating activities was 14.488 billion yuan, compared with net outflows for the same period in previous years, mainly due to a sharp increase in sales repayments.
Development trends
The EMU business is expected to continue to rise. The recovery of railway passenger traffic exceeding expectations in 2023 led to an increase in EMU tenders. Currently, some lines are still encrypted and further meet passenger traffic demand. We expect EMU tenders in 2024 to grow further on the basis of 2023. In terms of maintenance, the EMU operating rate increased dramatically in 2023, and the number of vehicles entering advanced maintenance increased markedly. In 2023, the company's maintenance revenue was 33 billion yuan, a slight increase from 2022. We expect EMU maintenance demand to be further released in 2024.
Profit forecasting and valuation
Maintain an outperforming industry rating. Considering the improvement in EMU demand, the 2024 EPS forecast was raised 15% to 0.44 yuan, and the 2025 EPS forecast was introduced. The company currently trades A shares at 16x/15x24e/25e P/E and H shares at 9x/8x 24e/25e P/E. Considering the increase in profit, the target price for A/H shares was raised by 20%/15% to HK$7.88/HK$5.11. A shares correspond to 18x/17x 24e/25e P/E, H shares correspond to 11x/10x 24e/25e P/E, and A/H shares respectively correspond to 13%/19% upward space.
risks
China Railway Group's tender fell short of expectations; wind power industry tenders fell short of expectations.