1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue/net profit to mother of 39.25/568 million yuan, an increase of 27.2%/30.4% year-on-year. The results are in line with our expectations.
The increase in EMU deliveries across time periods. 1Q24 rail transit equipment revenue increased 43.7% year-on-year to 2.120 billion yuan.
Among them, rail transit electrical equipment revenue increased 29% year on year to 1,617 billion yuan, mainly due to increased demand for inter-schedule EMU delivery and maintenance; rail construction machinery revenue increased 4.7 times year on year to 295 million yuan, and communication signal revenue increased 43% year on year to 143 million yuan.
Power semiconductors remain robust. Revenue from emerging equipment increased 13.2% year-on-year in 1Q24. Among them, power semiconductor revenue increased 23% year over year to 834 million yuan, revenue from electric drives for new energy vehicles, industrial conversion, and offshore equipment increased 11%/18%/15% year on year, and revenue from sensor components decreased by 50% year on year.
Both gross profit margin and net profit margin increased year over year. The 1Q24 consolidated gross margin was +1.7ppt to 34.1% year on year. The cost ratio for the period was basically the same year on year, and the net margin was +0.4ppt to 14.5% year over year. The net operating cash flow of 1Q24 was 482 million yuan, a year-on-year decrease of 790 million yuan.
Development trends
Demand in the EMU business is expected to rise in 2024. Benefiting from a recovery in passenger traffic exceeding expectations, EMU tenders increased markedly in 2023, but there is still a gap in meeting passenger flow demand. We believe that some routes have encryption requirements, and EMU tenders are expected to continue to increase year-on-year in 2024. At the same time, as the operating rate of EMUs increases and the number of vehicles undergoing advanced repairs increases, maintenance demand is expected to grow faster. For locomotives and urban rail, we expect 2024 to be lackluster.
Actively promote IGBT Phase III production capacity construction. According to the China Association of Automobile Manufacturers, China's NEV production and sales increased 28%/32% year-on-year in 1Q24, and downstream demand continued to grow. By the end of 2023, the Yixing plant in the third phase of the company's project had completed the capping of the main project and is scheduled to be put into operation in 2024. According to NE Era statistics, the company installed 1.01 million automotive IGBTs in 2023, ranking third with a market share of 12.5%. Currently, the company is still at full production, and we expect that the investment of new production capacity will drive the company to further increase its share.
Profit forecasting and valuation
Considering the rise in EMU demand, we raised the 2024 EPS forecast by 8.7% to 2.52 yuan, and introduced the 2025 EPS forecast by 2.74 yuan. The company's current stock price corresponds to 2024/25 10x/9x P/E, maintaining a target price of HK$36.54, corresponding to 2024/25 13x/12x P/E, with 29% upside. Maintain outperforming industry ratings.
risks
The rail transit tender fell short of expectations, and the volume of IGBTs fell short of expectations.