Rail transit business and power semiconductors drive the company's performance to new highs

Times Electric's 2024H1 performance reached a new high; achieved operating income of 10.28 billion yuan, a year-on-year increase of 20.0%; achieved net profit to mother of 1.51 billion yuan, an increase of 30.6% over the previous year. Comprehensive gross margin was 27.8%, down 3.2 percentage points year on year; net margin was 15.6%, up 1.7 percentage points year on year.

Rail transit equipment business revenue achieved overall growth

2024H1's rail transit equipment products achieved revenue of 6.14 billion yuan, an increase of 30.9% over the previous year. Among them, the revenue of rail transit electrical equipment/rail construction machinery/communication signals/other rail transit equipment was 49.5/0.56/0.42/0.22 billion yuan, with year-on-year changes of +27.3%/+15.6%/+131.5%/+52.2%, respectively.

The 2024H1 China Railway Group's EMU tenders reached 165 standards, exceeding the level of last year, and the company's market share remained stable; the company continued to advance in the development of serial new energy locomotives, and some models were loaded as prototypes; new orders for urban rail traction systems continued to lead the industry; rail construction machinery and equipment actively promoted the development and promotion of new products such as multi-source power contact network work vehicles, grinding trucks, and flaw detection vehicles; the market share of mainline railway signal products remained stable, and urban rail signal systems received new orders. With the recovery of the market and continuous breakthroughs in overseas markets and new products, the company's rail transit equipment business orders are expected to achieve continuous breakthroughs.

The company will benefit deeply from rail transit equipment updates and increased EMU maintenance demand. On February 28, 2024, Fei Dongbin, director of the State Railway Administration, mentioned while attending the press conference of the State Information Office on high-quality transportation development services in Chinese style modernization, that it is necessary to vigorously promote the application of new energy railway equipment, formulate emission standards and management measures for internal combustion locomotives, improve and update subsidy policies, accelerate the promotion and application of new energy locomotives, and strive to achieve basic elimination of old internal combustion locomotives by 2027. Old internal combustion locomotives are expected to be upgraded on a large scale, and the company, as one of the main suppliers of locomotive traction systems, will benefit deeply.

On August 16, 2024, China Railway Group issued a tender notice for the second batch of EMU advanced repair procurement projects in 2024. Since 2024, China Railway Group has tendered a total of Class 5 repair groups 302, Class 4 repair groups 146.625, and Level 3 repair groups; since 2024, China Railway Group has tendered a total of 509 Class 5 repair groups and 268.25 Class 4 repair groups, compared with +371.3%/+136.9% for the whole year of 2023, respectively. On July 31, 2024, CRRC announced the signing of a contract. CRRC signed a total of 45.99 billion yuan of contracts in June-July, including 13.68 billion yuan for advanced EMU repair orders. Since this year, CRRC has signed a total of 28.46 billion yuan for advanced EMU repair orders, which is nearly double that of 14.28 billion yuan for the whole of last year.

We believe that demand for post-cycle EMU maintenance will continue to increase in the future. In particular, demand for advanced repair represented by Level 5 repair will grow rapidly. As one of the main suppliers of EMU traction systems, the company will benefit significantly from the rapid growth in demand for Level 5 repair.

Revenue from the emerging equipment business is growing steadily

2024H1's emerging equipment products achieved revenue of 4.09 billion yuan, an increase of 9.2% over the previous year. Among them, the revenue of power semiconductor devices/new energy vehicle electric drive systems/sensor devices/industrial conversion products/offshore equipment was 17.5/9.0/0.14/0.9/0.41 billion yuan respectively, with year-on-year changes of +26.6%/+8.2%/-47.0%/-3.6%/+18.6%, respectively.

Driven by the “dual carbon” policy, businesses such as power semiconductors, new energy passenger vehicle electric drives, sensors, and wind and solar hydrogen storage, which are highly compatible with green energy saving and low carbon, continue to develop rapidly.

Power semiconductor revenue has increased dramatically, and production expansion projects are progressing rapidly

2024H1's power semiconductor devices achieved revenue of 1.75 billion yuan, an increase of 26.6% year over year. Power semiconductor production lines are already in full operation, and the Yixing Phase 3 project is progressing steadily. It is expected to be put into operation in the second half of 2024, and production capacity for medium- and low-voltage devices will continue to increase; IGBT7.5 generation chip technology products have been delivered in batches; SiC products have completed the development of 4th generation groove grid chips, SiC production line transformation has been completed, and SiC products for new energy vehicles are in a continuous verification stage. According to NE Era data, 2024H1 ranked in the top two passenger car power module installations in the industry, with a market share of 13.4%.

New energy passenger vehicle electric drive deliveries continued to grow, and production capacity increased steadily, and 2024H1's NEV electric drive system achieved revenue of 0.9 billion yuan, an increase of 8.2% over the previous year. The company's new energy passenger vehicle electric drive system has basically completed the layout of the four “1+N” production bases in the country. Production capacity has been steadily increasing, and production capacity has repeatedly reached new highs in a single month. It supports Hezhong and SAIC-GM-Wuling to achieve overseas exports of about 0.04 million units; promote scientific research, adhere to cutting-edge technological innovation, and continuously improve the competitiveness of electric drive technology. According to NE era data, 2024H1 continues to increase in the installed capacity of electric drive systems for new energy vehicles, ranking in the top nine in the domestic market; the installed volume of electronic controls for new energy vehicles increased 57% year on year, ranking among the top six in the domestic industry.

Maintain a “buy” rating

The company's rail transit equipment business has recovered strongly, and the power semiconductor business has performed well. We maintain the company's net profit forecast for 2024-2026 of 3.7/4.3/4.81 billion yuan, respectively, and the corresponding EPS of 2.62/3.05/3.41 yuan, respectively. We believe that demand for the company's rail transit products is expected to pick up in the future; production capacity in new industries such as power semiconductors, electric drives for new energy vehicles, and inverters continues to expand, and there is huge room for growth, which has an effect on improving the company's valuation and is worth focusing on; maintaining the “buy” ratings of the company's A shares and Hong Kong stocks.

Risk warning: risk of fluctuations in rail transit investment, risk of poor development of new industries, risk of increased industry competition