Core views:
The net profit returned to the mother surpassed the forecast center, mainly due to the high increase in railway equipment. The company released its 2024 quarterly report. In 24Q1, it achieved revenue of 32.2 billion yuan, -0.6% year on year, and net profit to mother of 1,008 billion yuan, +63.86% year over year, surpassing the forecast center; net profit after deducting non-return to mother was 668 million yuan, +228.08% year over year. The decline in the company's revenue is mainly due to the decline in urban rail and new industries. By business, railway equipment/urban rail/new industries achieved revenue of 133/55/ 12.2 billion yuan respectively, with a year-on-year growth rate of +54.1%/-24.3%/-19.3%.
The optimization of the business structure led to a significant increase in gross margin and a marked improvement in cash flow. Thanks to the increase in the share of revenue from the railway equipment business, the company's 24Q1 gross margin increased significantly to 24.92%, an increase of 3.41 pct over the previous year. Net operating cash flow achieved a net inflow of 14.5 billion yuan. This is the first time in 14 years that the company achieved positive operating cash flow in Q1, and is close to the cash flow level for the whole of last year, which means that the pace of profit release has accelerated significantly.
The decline in new orders in Q1 was mainly due to the impact of urban rail and new business. According to the first quarterly report, Q1 signed new orders of 40.8 billion yuan, -33% year-on-year, with new orders of 34.5 billion yuan and 6.3 billion yuan respectively in China and overseas. According to our breakdown of orders in the company's major contract announcements, the decline was mainly due to the impact of urban rail and wind power businesses. Looking at the whole year, against the backdrop of a significant recovery in investment in the rail transit industry and the upward phase of maintenance+renewal this year, the company's railway equipment business is expected to continue to grow. The wind power industry in the new industry Q1 is a low season for tenders, and the emerging equipment business of the holding subsidiary Shidai Electric is on an upward trend. We believe that the new industry is still expected to maintain a slight increase throughout the year.
Profit forecasting and investment advice. We expect the company's net profit from 24-26 to reach 137/153/17 billion yuan. Referring to comparable company valuations and the company's historical valuation center, the company was given a 2024 PE valuation of 18x, corresponding to a reasonable value of 8.59 yuan/share for A shares; considering the AH share premium factor, it corresponds to a reasonable value of HK$5.15 per share for H shares to maintain a “buy” rating.
Risk warning. Market competition increases risks, investment in the rail transit industry falls short of expectations, risks of overseas operations, and risk of exchange rate fluctuations.