Description of the event
The company released its 2024 quarterly report. In 24Q1, it achieved revenue of 32.183 billion yuan, a year-on-year decrease of 0.6%; net profit to mother of 1,008 billion yuan, an increase of 63.86%; net profit after deducting non-return to mother was 668 million yuan, an increase of 228.08% year-on-year.
Incident comments
The results exceeded expectations. The company's revenue in the first quarter was basically flat year on year. Net profit to mother was 1,008 billion yuan, up 63.9% year on year, and net profit after deducting non-return to mother was 668 million yuan, up 228.08% year on year. Mainly due to changes in product delivery structure in the first quarter, gross sales profit increased year on year. At the same time, the base for the first quarter of the previous year was low, leading to a significant increase in profit.
The railway equipment business is growing rapidly. 24Q1's railway equipment business achieved revenue of 13.3 billion yuan, an increase of 54.11% over the previous year, mainly due to increased EMU and bus revenue. Looking at the breakdown, EMU business revenue was 7.948 billion yuan and bus business revenue of 775 million yuan, all of which more than doubled; locomotive business revenue was 2,435 billion yuan, and truck business revenue was 2,159 billion yuan, which was basically the same revenue over the same period last year. In addition, the company's urban rail and urban infrastructure business revenue decreased by 24.33% year on year, mainly due to a decrease in revenue from urban rail subway vehicles and urban infrastructure; revenue from the new industry business decreased by 19.32% year on year, mainly due to a decrease in revenue from products such as wind power components and energy storage systems in the current period; and revenue from the modern service business decreased 13.23% year on year, mainly due to a decrease in leasing business revenue in the current period due to equity transfers. As the share of the company's high-margin railway equipment business increased (gross profit margin of about 25%), the company's gross profit margin and net profit margin both increased significantly year-on-year. 24Q1 gross sales margin was 24.92%, up 3.41 pcts year on year; net sales margin was 4.72%, up 1.49 pcts year on year.
Overseas markets continue to expand, and leading rail transit equipment companies have ushered in new opportunities to go overseas. The company's international business continued to break through. Revenue increased from RMB 171 billion in 2020 to RMB 27.7 billion in 2023, and new orders reached USD 8 billion in 2023. 24Q1 signed a new order of about 40.8 billion yuan, of which the international business contract amount was about 6.3 billion yuan. Overseas orders continue to arrive.
Demand for rail transit equipment is booming, and I am optimistic about the company's profit release. On the one hand, EMU tenders are expected to rise further in '24.
Since 2023, railway passenger traffic has continued to improve. The 2024 Spring Festival travel season sent 484 million passengers over 40 days, an increase of 39% over the previous year. High passenger traffic is expected to drive tenders for new EMUs. It is expected that tenders for new Q2 EMUs will land and continue to grow throughout the year. On the other hand, demand for equipment renewal will continue to be released: 1) Emission standards and management measures for internal combustion locomotives will be improved to achieve basic elimination of old internal combustion locomotives by 2027; 2) Advanced EMU repair volume. A total of about 14.28 billion yuan of advanced repair contracts was announced twice in 23 years, with an initial tender order volume of 14.78 billion yuan in 24 years, over the whole of 23 years; tenders may continue in the second half of the year. 24 may be a big year of impressive performance in advanced EMU repairs. In the future, as railway mileage increases and railway equipment holdings increase, it is expected that railway equipment maintenance business revenue will maintain an upward trend, and demand for renewal, replacement or maintenance is expected to ensure long-term business stability.
Maintain a “buy” rating. We expect the company's net profit to be 13.7 billion yuan and 15.6 billion yuan respectively in 2024-25, corresponding to PE 15 and 13 times, respectively. Maintain a “buy” rating.
Risk warning
1. The risk that railway investment falls short of expectations;
2. The risk of overseas business expansion falling short of expectations.