The Zhitong Finance App learned that Huatai Securities released a research report saying that the rail transit equipment boom continues and updates/maintenance brings new opportunities. In terms of addition, total railway fixed investment reached an inflection point in 23 years, and continued to increase 10.5% year-on-year from January to April '24; passenger traffic recovery and continued growth brought about a recovery in EMU tenders. China Railway's first bid for 165 groups in '24 has exceeded 23 years; in terms of stock renewal and replacement, the EMU advanced repair period, especially level 5, is approaching, and internal combustion locomotives/railway communication signal systems have all entered the replacement cycle. Companies related to the rail transit equipment industry chain performed well in 24Q1, and the annual performance is expected to improve as well. Short-term railway fixed asset investment/passenger transport/EMU tenders continue to exceed expectations. Advanced maintenance and renewal iterations of long-term equipment stock will increase, and related industrial chains and companies such as rail transit vehicles and components, and communication signal systems are worth paying attention to.

The main views of Huatai Securities are as follows:

New: Rail transit equipment boom continues, railway fixed asset investment/passenger transport/EMU tenders continue to improve

In terms of adding rail transit equipment, attention should be paid to railway fixed asset investment/passenger transport/EMU tenders. Currently, all indicators continue to improve. 1) In '23, China's railway fixed asset investment reached 764.5 billion yuan, yoy +7.5%, which ushered in an inflection point in growth. From January to April '24, the country invested 184.9 billion yuan in railway fixed assets, yoy +10.5%. Continued growth in railway fixed asset investment is expected to drive equipment release. 2) In '23, China's railway passenger traffic recovered beyond expectations. National railway passenger traffic reached 3,685 million people, yoy +128.8%; in '24, the M1-M3 national railway passenger traffic volume was 1,014 million, yoy +28.5%. Railway passenger traffic continued to improve, and China Railway Group's vehicle bidding momentum is expected to be maintained. 3) In '23, China Railway Group tendered a total of 164 350-kilometer EMUs, yoy +78%; the first bid in '24 had a total of 165 groups, which has been over the whole of '23.

Replacement: Advanced EMU maintenance has entered an intensive period, and equipment updates drive the increase in locomotive/communication signal systems

In terms of replacement, attention should be paid to advanced EMU repairs and communication signal system updates. 1) Advanced EMU maintenance has 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 teams were tendered, including 207 grade 5 repair groups, accounting for 57%.

2) The life cycle of a communication signal system is generally about 10-15 years. Huatai Securities expects that currently about 11,000 kilometers of high-speed railway communication signal systems have reached or are gradually entering the replacement period. Subsequent railway communication signal system updates will bring new growth opportunities to industrial chain companies.

The vehicle industry chain/communication signal system and other companies benefited from the industry boom and performed well in 24Q1.

Huatai Securities selected 15 listed vehicle manufacturing and components/communication signal systems/construction section/railway maintenance equipment companies represented by CRRC, Times Electric, China Express, China Railway Industry/Shenzhou High Speed Rail, etc. as a sample to explore the boom in the rail transit equipment industry chain. Rail transit equipment industry with 2023 revenue of 369.291 billion yuan/yoy +4.70%, Q1 revenue of 59.779 billion yuan/yoy -0.87%; overall gross profit margin of 32.42% /yoy+0.61pct in 2023, gross profit margin 32.74% /yoy+0.74pct in Q1, industry net interest rate of 8.83% /yoy+1.88pct in 2023, reaching 5.29% /yoy+1.57pct in Q1. Vehicle and parts companies and signal communication systems achieved gross profit/net profit Interest rates have both increased. Industry inventory/contract liabilities increased by 8.59%/7.11% respectively to 123.988 billion yuan/46.518 billion yuan, supporting the continuous conversion of orders.

Rail transit equipment companies are benefiting from the boom in the industry, and fundamentals are expected to continue to improve.

The industry boom supports the performance of rail transit equipment companies. It is recommended to focus on CRRC (601766.SH) in the field of vehicle manufacturing, which directly benefits from EMU tenders and advanced repair volumes; the rail transit equipment industry chain and companies also include body parts: Era Electric (688187.SH), Times New Materials (600458.SH), Coney Electromechanical (), Jinxi Axle (), Jinxi axle (); communication signal systems: China Express (system), thought sequence control (603111.SH 603680.SH 600495.SH 688009.SH 603508.SH), Traffic Control Technology (688015.SH), Jiaotong University Sinuo (300851.SZ), Zhonghe Technology (000925.SZ); Railway Engineering: China Railway Industry (600528.SH), Railway Track (), Railway Construction Heavy Industries (Dow); Railway Maintenance Equipment: Shenzhou High Speed Rail (000008.SZ). 688569.SH 688425.SH

Risk warning: The fixed asset investment of the railway company fell short of expectations, and the pace of EMU bidding/railway signal system bidding slowed down.