Domestic locomotive train control leaders help railway safety and informatization. The company has been deeply involved in train operation control systems for decades, providing overall information management solutions such as train operation control, railway safety protection, and high-speed railway operation monitoring, and striving to become a “leading domestic provider of rail transit traffic safety control and information technology systems”. The company's overall revenue and performance in recent years have shown an upward trend. The revenue from 2021 to 2023 was 10.64/1,067/ 1,180 billion yuan, respectively, with year-on-year changes of 26.19%/0.25%/10.60%; net profit to mother from 2021 to 2023 was 3.86/3.46/ 412 million yuan, respectively, with year-on-year changes of 167.12%/-10.15%/18.97%, respectively. The company's profit level remains high. In 2023, the company's gross margin and net margin were 63.09% and 36.28%, respectively. At the same time, the company insisted on reducing costs and increasing efficiency, and the overall cost rate showed a downward trend. Among them, the company's R&D expenses rate remained above 10% all year round to enhance the core competitiveness of the enterprise.
The three major products are developing steadily, and the train control system business contributes the main revenue. The company's main business covers the two major fields of general speed railways and high-speed railways. It can be divided into three major businesses: train operation control, railway safety and protection, high-speed rail train operation monitoring and information management. In 2023, they contributed revenue of 7.03/1.90/256 million yuan respectively, a year-on-year change of 20.77%/-6.39%/1.78%; the gross margin for 2023 was 63.55%/61.18%/69.94%, respectively, with a year-on-year change of 6.08%/-5.06%/2.20%. Among them, the train control system contributed to the company's main revenue, accounting for more than 60% of revenue in 2023. The company's LKJ train control system market is leading. Currently, the main qualified suppliers of LKJ systems include the company, Times Electric, and Jiaotong University Sino. By the end of 2023, the company's market share of LKJ systems was over 49%. The company's railway safety protection business and high-speed rail train operation monitoring and information management are developing steadily. LSP promotion in railway security systems is strong, and production and sales both increased by 34.73% year on year; the company's high-speed rail train operation monitoring system is far ahead, and it is expected that the resumption of high-speed rail bidding will drive performance growth.
National policy+industry cycle, the rail transit sector is expected to usher in a wave of renewal and replacement. On February 23, the fourth meeting of the Central Committee on Finance and Economics was held to propose promoting a new round of large-scale equipment upgrades and trade-in of consumer goods to effectively reduce logistics costs for the whole society. Subsequently, on March 7, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”. The plan states that the upgrading and transformation of equipment in key industries, equipment in the field of construction and municipal infrastructure, transportation equipment, and old agricultural machinery, education and medical equipment should be promoted in an orderly manner. On February 28, the State Railway Administration proposed to accelerate the promotion and application of new energy locomotives, and strive to basically eliminate old internal combustion locomotives by 2027. At the same time, due to the impact of the industry cycle, some railway equipment is currently in overdue service. Based on this, we believe that we have now entered a critical point of equipment upgrading in the railway sector. The company's three major businesses have plenty of orders in hand, and there is strong support for performance growth.
Investment advice: As the leader of domestic locomotive LKJ train control, Thinking Train Control has formed a strong competitive advantage in terms of technology accumulation, talent team, product system, field position, and technical support for customer needs. We are optimistic that large-scale equipment renewal and replacement policies and the upward cycle of the industry will benefit the company's performance growth. We expect the company's revenue to be 15.20, 17.94, and 2,013 billion yuan respectively in 2024-2026, up 28.8%, 18%, and 12.2% year-on-year; net profit to mother for 2024-2026 is 5.37, 6.44, and 779 million yuan, respectively, up 30.4%, 19.8%, and 21.1% year-on-year. Referring to comparable company valuations, the company was given 20XPE in 2024, with a target market value of 10.8 billion yuan and a target price of 28 yuan. It was covered for the first time, and a “strong” rating was given.
Risk warning: Policy progress falls short of expectations, the renewal and transformation process falls short of expectations, and market competition intensifies.