Core views:
The interim results exceeded expectations, and the year-on-year profit growth rate for the first half of the year was over 30%. The company issued a voluntary performance forecast. 24H1 achieved net profit attributable to mother of 1.507 billion yuan, an increase of 30.56% over the previous year, and realized net profit without deduction of 1.268 billion yuan, an increase of 36.5% over the previous year. Looking at Q2 alone, the company achieved net profit of 0.939 billion yuan, +30.6% year-on-year, and achieved net profit without deduction of 0.807 billion yuan, or +32.3% year-on-year. The overall performance slightly exceeded our expectations.
Delivery of rail transit traction systems has increased, and the overhaul cycle has further released profit flexibility. According to China Railway, the total amount of railway fixed asset investment reached 337.3 billion yuan in the first half of this year, an increase of 10.6% over the previous year, and continued to grow rapidly. China Railway Group tendered 165 sets of trains in the first half of the year. As the leading supplier of traction systems for core components, the delivery pace was leading the way in vehicle manufacturing, and its performance continued to grow rapidly. At the same time, train and locomotive overhauls will enter an upward cycle in the next few years, which means that the profit side of the company's rail transit business will usher in a rapid release.
The company's IGBT has obvious advantages in high voltage, and is expected to expand further in the UHV field. As a domestic IGBT replacement leader in the UHV field, the company is an upstream core supplier of UHV converter valves. The power grid and rail transit IGBT markets are growing rapidly. According to the company's investor relations activity records, the profitability of high-voltage IGBTs is higher than vehicle standards, and they are expected to continue to contribute significantly to profits in the future.
Profit forecasting and investment advice. The company is a leader in rail transit traction and conversion systems plus a leader in high voltage and medium and low voltage IGBT. Both rail transit equipment and emerging equipment businesses have entered a rapid growth channel. The estimated net profit for 24-26 is 3.83/4.71/5.69 billion yuan, maintaining the company's 2024 PE valuation of 25x, corresponding to a reasonable value of 67.81 yuan/share for A shares; considering AH share premium factors, it corresponds to a reasonable value of HK$47.47 per share for H shares, maintaining a “buy” rating.
Risk warning. The risk of overcapacity in the power semiconductor industry; the risk of declining prices and profitability; the risk of falling short of expectations in the rail transit industry.