Incident: The company released its 2024 quarterly report, with 24Q1 revenue of 6.51 billion yuan, -13.1% year on year, net profit attributable to mother of 604 million yuan, -10.8% year on year; net profit after deducting non-attributable net profit of 594 million yuan, -10.3% year on year. 24Q1 performance declined, and new orders from the railway sector increased.
24Q1 The company's performance was under pressure and fell slightly short of expectations. In 24Q1, the railway, urban rail, overseas, and general engineering contracting business achieved revenue of 3.56 billion yuan, 1.62 billion yuan, 180 million, and 1.14 billion yuan respectively, which was -9.7%, -7.2%, -34.9%, and -24.6%, respectively. Overall, it was slightly lower than expected. Taking into account that new orders in the railway, urban rail, overseas, and above sectors were all +5.0%, +3.9%, and +45.2% year over year; 24Q1 companies signed a total of 11.36 billion new orders, -17.1% year over year; of these, the railway sector may benefit from rising railway investment, with new orders of 3.985 billion, +10.1% year over year; urban rail sector was 1,524 billion, or -55.4%; overseas business of 1,326 billion yuan, basically flat; general engineering contracting business of 4.527 billion yuan, -15.2% year on year. Furthermore, the company's rail traffic control system business order cycle is long, usually 2-3 years. Short-term revenue declines or the pace of delivery is affected.
The share of revenue growth in the railway sector, where product gross margin is relatively high, driving the company's overall gross margin increase; revenue declined and expenses were relatively fixed, expense ratios increased slightly, and net interest rates were relatively stable. 24Q1's comprehensive gross margin was 27.4%, +4.7pp. The increase in gross margin was mainly due to the contraction of the company's low gross margin engineering business and the increase in revenue in the railway sector with high gross margin; the net margin was 10.95%, +0.6pp; the period expense ratio was 15.6%, +3.8pp; among them, sales, management, R&D, and financial expense ratios were 2.7%, 7.5%, 5.8%, and -0.4%, compared to +0.4pp, +0.4pp, and the company's 24Q1 revenue There was a decline, but the company's business was project-based, and expenses were relatively fixed, and the overall cost rate increased slightly.
The company is a leader in rail transit control systems and is expected to benefit deeply from rail transit line renewal and transformation. Currently, railway-related equipment is in a replacement cycle, in line with the pace proposed by the Central Committee on Finance and Economics to promote large-scale equipment updates. Subsequent line renovation and upgrading requirements (high-speed rail line transformation in the railway sector, 2G to 5G private network transformation and construction, and signal system upgrade and transformation in the urban rail sector) are expected to be released at an accelerated pace. The company is the only domestic enterprise integrating design, equipment and construction of rail signal communication systems. In 2023, the company's market share in the high-speed rail weak current integration business exceeds 60%, and the market share in the urban rail signal system integration field exceeds 37%. It topped the list, and subsequent demand for related upgrades is expected to bring new flexibility to the company's business.
Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 3.72, 42.0, and 4.52 billion yuan, EPS 0.35, 0.40, and 0.43 yuan respectively. The compound net profit growth rate for the next three years is 9%, and the PE corresponding to the current stock price is 15, 14, and 13 times, respectively. The company was given 25 times PE in 2024, with a target price of 8.75 yuan. It covered for the first time, and gave it a “buy” rating.
Risk warning: Railway fixed asset investment falls short of expected risk, overseas operation risk, urban rail investment falls short of expected risk.