Description of the event

CRRC released its 2024 semi-annual report. 2024H1 achieved revenue of 90.039 billion yuan, +3.13% year over year; net profit to mother 4.201 billion yuan, +21.40% year over year; net profit after deducting non-net profit of 3.36 billion yuan, +30.08% year over year. Among them, 24Q2 revenue was 57.857 billion yuan, +5.34% year over year, net profit to mother was 3.193 billion yuan, +12.21% year over year; after deducting non-net profit of 2.692 billion yuan, +13.14% year over year. 2024H1 signed new orders of about 140.1 billion yuan, of which new overseas orders were about 29.8 billion yuan.

Incident comments

The railway equipment business saw a high increase in revenue. In the first half of 2024, the company's railway equipment business revenue was 42 billion yuan, up 47% year on year. Among them, EMU, bus, locomotive and truck revenue was 265, 2.6, 8.1, and 4.7 billion yuan, respectively, +93%/+109%/-14%/+15%; urban rail and urban infrastructure business revenue was 16.4 billion yuan, down 14.05% year on year, mainly due to a decrease in urban rail engineering revenue; new industry business revenue was 30 billion yuan, down 18.47% year on year This was mainly due to a decrease in revenue from wind power and energy storage equipment; the revenue of the modern service business was 1.6 billion yuan, a year-on-year decline of 42.32%, mainly due to a decrease in the scale of logistics and financial leasing businesses.

Product structure optimization+quality and efficiency improvement, profitability improvement. In the first half of 2024, the company's comprehensive gross profit margin was 21.41%, up 1.97pct year-on-year (according to the provisions of the “Compilation 2024 of the Guidelines for the Application of Corporate Accounting Standards” issued by the Ministry of Finance, the company included the accrued guarantee warranty expenses in the 2024 semi-annual report as “operating costs” and no longer included “sales expenses”. At the same time, the financial statement data for the comparable period was adjusted accordingly using a traceability adjustment method). By business, the gross margins of the four major businesses of railway equipment, urban rail and urban infrastructure, new industries, and modern services were 22.71%, 18.05%, 20.75%, and 33.60%, respectively, with year-on-year improvements. The company's overall gross margin and the increase in gross margin of various business segments in the first half of the year were mainly due to:

1) The impact of changes in product structure; 2) The impact of the company's continuous promotion of quality and efficiency. In terms of net interest rate, net sales margin reached 6.12% in the first half of the year, up about 0.92 pct from the first half of 2023.

The boom in railway passenger demand is compounded by the recovery in freight demand, and demand for railway equipment is expected to rise. From January to July 2024, railways across the country sent 2.522 billion passengers, an increase of 15.7% over the previous year; from July 1 to August 25, the country's railways sent a total of 0.802 billion passengers, an increase of 6.2% over the previous year; passenger demand continued to exceed expectations and is expected to drive demand for new EMUs. In terms of freight, the country's railway freight volume from January to July 2024 reached 2.945 billion tons, up 1.2% year on year, and 0.432 billion tons in July alone, up 4.2% year on year. Looking at the increase in freight demand from month to month, it is expected to drive demand for locomotives and trucks.

The maintenance business is booming, and demand is expected to be further released. In the first half of the year, the company's railway maintenance and installation business revenue was 19.997 billion yuan, an increase of 7.956 billion yuan over the previous year. The biggest increase was mainly due to the rapid increase in EMU operating mileage since 2023, and the corresponding rapid increase in vehicles entering the maintenance period. With the increase in total EMU ownership, operating mileage, and length of service, a large number of Fuxing EMUs have entered the advanced repair process, and a large number of harmonized EMUs have entered the middle to late stages of life. It is expected that the company's advanced EMU repair business will continue to grow throughout this year, and will continue to remain relatively high for the next 2-3 years.

Maintain a “buy” rating. We expect the company's net profit to be 13.7 billion yuan and 15.7 billion yuan respectively in 2024-25, corresponding to PE 16 and 14 times, respectively, maintaining a “buy” rating.

Risk warning

1. The risk that railway investment falls short of expectations;

2. The risk of overseas business expansion falling short of expectations.