Incident Overview

On October 31, the company released its report for the third quarter of 2024. The company achieved operating income of 16.256 billion yuan in 2024Q1-3, yoy +15.33%, of which 2024Q3 achieved revenue of 5.973 billion yuan, yoy +8.10%; 2024Q1-3 net profit of 2.501 billion yuan, yoy +21.82%, 2024Q3 net profit to mother 0.994 billion yuan, yoy +10.61%.

Analysis and judgment

The green and low-carbon transformation policy for railway locomotives sends a positive signal, and the rail transit business is growing strongly.

On September 26, 2024, the State Railway Administration issued the “Measures for the Supervision and Administration of the Elimination and Renewal of Old Railway Internal Combustion Locomotives” to clarify the period of use of old railway internal combustion locomotives, determine that all old railway internal combustion locomotives in key regions will withdraw from the railway transportation market by the end of 2027, and further determine that 70% or more of old railway internal combustion locomotives in other regions of the country will withdraw from the railway transportation market by the end of 2035; furthermore, the relevant policy in February 2024 clearly states that efforts will be made to increase the share of railway electric locomotives to more than 70% by 2030. In the context of the green and low-carbon transformation of railway locomotives, the company already has locomotive platforms covering the three power levels of 1000kw, 1500kw and 2000kw, covering a wide range of power sources; 2024Q1-3's rail transit equipment business achieved revenue of 9.434 billion yuan, yoy +22.17%. China Railway Group's EMU tenders increased in the first three quarters of 24, the urban rail business market expanded smoothly, and traction systems continued to lead the domestic market share.

At the R&D level, the company has always adhered to the benchmark of putting research first. In 2024Q1-3, the company increased the introduction and training of R&D personnel, ensured sufficient investment in scientific research materials, and continuously promoted the transformation and monetization of R&D results. During this period, it invested a total of about 1.589 billion yuan in R&D expenses, yoy +20.09%. We believe that the company is expected to respond to the demand for railway locomotives renewal and quality improvement with rich platform products and continuous technological innovation. The company will also use this opportunity to continue to strengthen its strength and gain lasting growth momentum.

Delivery of new energy electric drive systems has reached the next level, and the increase in power semiconductor production capacity has helped scale effects.

2024Q1-3, the company's emerging equipment business achieved revenue of 6.755 billion yuan, yoy +11.05%, of which power semiconductor device business revenue was 2.712 billion yuan, yoy +26.85%; 2024Q1-3 delivered more than 0.44 million electric drive systems, yoy +29.41%, and has become an important supplier of electric drive systems and IGBT modules for local new energy passenger vehicles; the Yixing factory targets the NEV sector, and production capacity construction progress is in line with expectations. Some production lines are already in line It is gradually entering the trial production phase, which is expected to reach production in 2025, which will bring the company 0.36 million pieces/year of 8-inch IGBT wafers. According to NEX, the 2024H1 ranks second in China in the number of passenger car power modules installed, with a market share of 13.4%. In 2024Q1-3, the total winning volume of inverters was 10.6GW, and the shipment volume was 6.2GW. The company began research on SiC technology in 2011 to achieve an annual production capacity of 0.025 million 6-inch SiC sheets. At the same time, the third phase of the Zhuzhou project is scheduled to start construction in 2024. It is expected that the production line will be completed by the end of 2025. At that time, it is expected that the process and mass production capacity will be upgraded to fully support the rapid development of the company's semiconductor industry. As China's NEV passenger vehicle market continues to expand and industry competition becomes more intense, we believe that the company will also seize market opportunities, fully respond to the differentiated and customized needs of automakers, continuously empower products through innovation, and help local automakers go overseas while stabilizing their market position.

Investment advice

Maintain a “buy” rating. We adjusted the company's 2024-2026 net profit forecast to 3.796/4.48/5.075 billion yuan. The corresponding EPS was 2.69/3.17/3.60 yuan, respectively, and the corresponding PE valuation was 19/16/14 times, respectively.

Risk warning

Investment in rail transit construction falls short of expectations, R&D progress falls short of expectations, and industry competition intensifies