Incidents:
The company disclosed its earnings forecast for the first quarter of '24, and is expected to achieve net profit of 923 million yuan to 1,046 million yuan (median value of 985 million yuan), an increase of 50%-70% (median value of 60%); net profit after deduction is estimated to be 583 million yuan to 706 million yuan (median value of 645 million yuan), an increase of 186%-246% (median value of 216%). The performance exceeded our expectations.
Key points of investment:
Railway investment and railway passenger and freight demand were stable in the first quarter of '24. In January-January '24, China's railways completed fixed asset investment of 65.2 billion yuan, an increase of 9.5% over the previous year. Railways across the country sent 661 million passengers, an increase of 35.5% over the previous year, showing steady growth on the demand side.
Delivery of railway equipment has been accelerated to verify that demand side is booming. The company's railway equipment sector has shown a high demand side boom, with overall railway equipment revenue of 98.191 billion yuan, up 18.05% year on year (including 41,829 billion yuan, up 43.38% year on year, locomotive 27.985 billion, up 1.59% year on year, bus 9.699 billion, up 55.68% year on year, truck 18.68% year on year). Railway equipment maintenance revenue was 33.371 billion yuan, up 7.62% year on year; judging from the number of tenders, EMU tenders in 23 312 groups, up 123% year over year. The reporting side confirmed revenue for 166 groups in '23. The remaining 146 groups are expected to confirm in '24. The first quarter's performance increased dramatically or indicates that the pace of delivery is speeding up, reflecting the urgency of China Railway demand.
The year 24 ushered in three attacks of “demand improvement+performance realization+policy catalysis”. 1) Demand improvement: Railway passenger traffic continues to grow, and China Railway Group's momentum to purchase new cars is increasing; EMUs have entered a peak overhaul period, and the first advanced repair order in 24 years has already exceeded the full 23 year; 2) Performance implementation: the vehicle delivery cycle is 6-12 months, most of the 23 new car tenders are in the second half of the year, and 24 is the year of performance release; 3) Policy catalysis: The central government is promoting a new round of large-scale equipment updates, which may accelerate the renewal and replacement of vehicles and components. Recently, the General Administration of Railways has stated that it will basically phase out old internal combustion engines in 27.
There are plenty of new orders and on-hand orders, and there is strong certainty about performance. According to the company's announcement, the company signed new orders in '23 about 298.6 billion yuan, up 6.99% year on year. Of these, new international business orders were about 58.4 billion yuan, up 14.73% year on year; at the end of the period, the company's on-hand orders were about 2703 billion yuan, up 8.08% year on year. Among them, international business orders were about 112.7 billion yuan, up 13.95% year on year.
Maintain profit forecasts and maintain a “buy” rating. The estimated net profit for 24-26 is 133.01, 146.91, and 16.292 billion yuan, respectively. The current stock price is 15X, 13X, and 12X for 24-26 PE, respectively, maintaining a “buy” rating.
Risk warning: the risk of macroeconomic fluctuations, the risk of uncertainty in railway fixed asset investment, the risk that overseas market demand falls short of expectations, etc. (Note: All data in this article comes from company announcements and public information.)