China Railway's first EMU tenders in '24 have exceeded 23 sets, providing support for CRRC's performance growth. On May 10, '24, China Railway Group issued a tender notice for the procurement project for the first Fuxing EMU with a speed of 350 kilometers per hour. The tender included 132 EMUs with a speed of 350 kilometers per hour (8 groups); 13 sets of Fuxing intelligent EMUs with a speed of 350 kilometers per hour (8 groups); 20 groups (10 trains) of the Fuxing intelligent configuration EMU with a speed of 350 kilometers per hour (8 groups) (Group of 17 cars). A total of 165 groups were first tendered in '24, which has exceeded 23 years (164 groups), and is expected to further boost CRRC's EMU revenue in China. We expect the company to return 0.47/0.50/0.53 to parent EPS in 24-26, respectively. Comparatively, the company's 24-year IFIND unanimously expected an average PE value of 15.4 times. Considering that the company is a global leader in rail transit equipment, fully benefiting from the increase in EMU tenders and the advent of an intensive period of advanced maintenance, 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 cumulative year-on-year growth of M1-4 railway fixed asset investment in M1-4 in 2014 was +10.5%. From January to April 2024, China's railways completed fixed asset investment of 184.9 billion yuan, an increase of 10.5% over the previous year. Compared with M1-M3 in '24, the year-on-year growth data of 9.86% continued. If railway fixed asset investment maintains a 10% year-on-year increase throughout the year, the investment amount for the full year of '24 will reach 841 billion yuan. Continued growth in railway fixed asset investment is expected to drive EMU tenders/advanced EMU repairs.
Passenger traffic and freight volume continue to improve, and it is expected to maintain China Railway Group's vehicle tendering momentum. China's railway passenger traffic volume exceeded expectations in 2023, with the national railway passenger traffic reaching 3,685 billion people, +128.8%; on May 1, '24, the country sent 206.93 million passengers, setting a record high in single-day passenger traffic; the number of EMU passengers sent reached 14.05 million on the same day, also setting a new single-day record. From April 29 to May 6, railways across the country sent a total of 137 million passengers, an increase of 3% over the previous year; national railways operated an average of 1,180 buses per day, an increase of 5.4% over the previous year. Freight loading also increased steadily during the May 1st period. National Railways finished loading 177,000 vehicles per day, an increase of 1.4% over the previous year. Railway passenger traffic and freight volume continue to improve, and it is expected to maintain China Railway Group's vehicle bidding momentum.
CRRC announced a 14.8 billion EMU advanced repair contract. Advanced maintenance is expected to continue to contribute to performance growth. Advanced EMU repair has already ushered in an intensive period. From 2012 to 2015, China's railway train ownership grew rapidly, CAGR = 30.6%. China's EMU level 5 repair cycle is 480 ± 100,000 kilometers or 12 years, so China's EMUs are expected to enter a critical stage of advanced maintenance and renewal in 2024-2025. 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, accounting for 57%. On March 4, '24, CRRC announced the signing of contracts between December '23 and 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.