Description of the event
The company released its 2024 quarterly report. In 24Q1, it achieved revenue of 6.547 billion yuan, a year-on-year decrease of 12.74%; net profit to mother was 604 million yuan, a year-on-year decrease of 10.84%; net profit after deducting non-return to mother was 594 million yuan, a year-on-year decrease of 10.29%.
Incident comments
Profitability has been further improved. 24Q1's gross sales margin was 27.41%, up 4.73 pcts year on year and 0.81 pcts month on month; net sales margin was 10.95%, up 0.58 pcts year on year and 2.36 pcts month on month. The company's revenue mainly comes from rail transit control systems and general engineering contracting. In recent years, the gross margin of rail transit control systems has stabilized between 26% and 30%, and the gross margin of general engineering contracting is around 10%. With the contraction of the low-margin engineering general contracting business, the company's profitability has further increased.
The release of orders in the railway market hit a record high for the same period in the past five years. The amount of new contracts signed by 24Q1 in the railway sector was 3,985 billion yuan, an increase of 10.13% over the same period last year. The absolute amount of orders in the railway sector hit a new high in the first quarter in the past five years, and line orders began to be released. In the future, along with the demand for equipment updates, orders to replace the entire signal system line will be further released.
Demand for updates and replacements is gradually increasing, and the incremental process is more flexible. In 2024, dynamic inspection work on the 966 kilometer upgrading and renovation of the Wuguang section of the Beijing-Guangzhou High Speed Rail will be carried out. Among them, tenders for some projects of the train control system speed renovation project have been completed, and subsequent tenders for the entire line renovation are expected to gradually be implemented. The company provides core train control technology and equipment for the vast majority of high-speed railways already opened and operated in China; it occupies about 40% of the domestic market share of urban rail transit control systems, and participates in rail transit control system design, integration and construction projects in more than 40 cities including Beijing, Shanghai, and Shenzhen. Recently, there has been an increase in renovation projects, and the need for equipment upgrading is also becoming more and more urgent. In the railway market, the company's renewal orders account for about 30%, and it is expected that after 3-5 years, the share of renewal and renovation will reach more than 40%; in the urban rail transit market, renewal and renovation orders account for about 20%, and it is expected to reach 25% after 3-5 years. In addition, the construction cycle of the updated and replaced lines is relatively short, the pace of delivery and acceptance is faster, the profitability may be better, and the performance is more flexible.
Ongoing orders have reached a new high, and long-term overseas expansion is worry-free. By the end of 2023, the company had orders of 168.831 billion yuan; as of the end of 24Q1, the company's inventory and contract liabilities continued to increase compared to the end of 2023. The company has plenty of orders in hand, and there is no need to worry about subsequent acceptance. Current orders provide a strong guarantee for the company's revenue performance for the next 2-3 years. In the field of overseas business, the company's new orders increased by 45% year on year in 2023. In the future, it will continue to rely on key regions and countries along the “Belt and Road” to work in both directions in the existing line transformation market and the new line construction market, use the core advantages of train control systems to drive “four power” professional contracting, explore municipal and information technology businesses, and further enhance the level of overseas business acceptance. With the development of overseas markets, the share of overseas revenue is expected to increase, and overseas business is expected to contribute an important increase.
Maintain a “buy” rating. We expect the company to achieve net profit of 3.95 billion yuan and 4.50 billion yuan respectively in 2024-2025, corresponding to PE of 15.4 and 13.5 times, respectively, giving it a “buy” rating.
Risk warning
1. The risk that downstream demand falls short of expectations;
2. The risk of overseas market expansion falling short of expectations.