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西南证券:政策支持叠加后市场放量 铁路装备高景气可持续

Southwest Securities: Market volume increase after policy support stacking, railroads equipment high prosperity sustainable.

Zhitong Finance ·  Sep 26 14:35

2024-2027 is a big year for railroad investments, and domestic rail transit equipment manufacturing companies will definitely benefit.

According to the Wisdom Financial APP, Southwest Securities released a research report stating that as of August 2024, the cumulative fixed asset investment in national railroads reached 477.5 billion yuan, a year-on-year increase of +10.5%; it is estimated that the annual average railroad investment will exceed 800 billion yuan from 2024 to 2025, and industry investment will remain at a high level in 2026-2027. 2024-2027 will be a peak period for railroad investments, and domestic rail transit equipment manufacturing companies will benefit significantly. In addition, the current railroad equipment is in a replacement cycle, with the national railroad proposing to strive to achieve basic elimination of old internal combustion locomotives by 2027, speeding up the bidding and procurement of locomotives, locomotive supporting signaling/control/electromechanical equipment, with hopes of enhancing bidding deliveries.

The main viewpoints of Southwest Securities are as follows:

Railroad investments will remain at a high level, and the industry's high prosperity is sustainable.

As of August 2024, the cumulative fixed asset investment in national railroads reached 477.5 billion yuan, a year-on-year increase of +10.5%; it is estimated that the annual average railroad investment will exceed 800 billion yuan from 2024 to 2025, and industry investment will remain at a high level in 2026-2027. The growth in passenger and freight volumes, the improvement in China Railway's profitability, and the increase in equipment investment willingness. In August 2024, the national railroad's cumulative passenger and freight volumes increased by +14.9% and +2.6% respectively, with China Railway Group achieving a net income of 1.7 billion yuan in the first half of 2024, turning losses into profits, reducing the asset-liability ratio to 64.6%, improving its operational status, and enhancing investment willingness.

Policy support is accelerating the post-market release of railroad equipment. With equipment renewal policies, the national railroad aims to achieve the basic elimination of old internal combustion locomotives by 2027; as of August 2024, national railroad publicly tendered 509 sets of Level 5 DMU, and CRRC signed a high-level repair order for DMU worth 28.46 billion yuan, accelerating the release in the after-market, benefiting the entire industry chain.

Railroad investments will remain at a high level, the industry's prosperity is high, and the entire industry chain will benefit.

2024-2027 is a peak period for railroad investment, and domestic rail transit equipment manufacturing companies will definitely benefit from it. In August 2024, the national railroads collectively completed fixed asset investments of 477.5 billion yuan, a year-on-year increase of 10.5%, with the absolute investment amount reaching the historical highest level and the investment growth rate being the highest since 2014. According to China Railway Group: The total scale of national railroad fixed asset investments during the 14th Five-Year Plan period will be roughly equivalent to the annual average of around 800 billion yuan during the 13th Five-Year Plan period. The railroad investments from 2021 to 2023 were 748.9 billion yuan, 710.9 billion yuan, and 764.5 billion yuan respectively. It is expected that the annual average railroad investments in 2024-2025 are expected to exceed 800 billion yuan; in 2026-2030, with the backdrop of railroad renewal and reconstruction and increasing post-market demand, railroad industry investments will maintain a high level.

The growth in passenger and freight transportation volumes, the improvement of profit capabilities for China Railway Group, and the increasing proportion of equipment investments.

In 2020-2022, there was a significant decrease in passenger traffic volume, with the national railroad passenger transportation volume only accounting for 60%, 71%, and 45% of the volume in 2019. The passenger train operation rate was low, the demand for new EMUs decreased with the opening of new lines, and more railroad investments were allocated to road construction, resulting in reduced vehicle procurement. In 2023, the railroad passenger transportation volume increased by 128.6% compared to 2022, and by 2.8% compared to 2019. From January to August 2024, the national railroad passenger transportation volume was 3 billion person-times, a year-on-year increase of 14.9%, while the national railroad freight transportation volume was 3.38 billion tons, a year-on-year increase of 2.6%. As the pressure of railroad passenger and freight transportation continues to rise, the motivation for rail transit equipment procurement has gradually shifted from the equipment configuration demand for new mileage to the capacity scarcity demand for passenger and freight transportation pressure.

In the first half of 2024, China Railway Group achieved a total operating income of 579.4 billion yuan, a net income of 1.7 billion yuan, and a debt-to-asset ratio reduced to 64.6%. The quality and efficiency of railroad operations steadily improved, and the willingness for equipment investments is expected to continue to rise (with equipment investments accounting for only about 12% currently, compared to around 18-20% in 2016). The demand for vehicle purchases and equipment replacements will accelerate, with equipment manufacturers expected to benefit first.

Under the background of a new round of large-scale equipment updates, the phasing out of old internal combustion locomotives and the acceleration of the aftermarket for EMU high-level maintenance.

The current railroad equipment is in a replacement cycle. At the beginning of 2024, China Railway proposed to strive to achieve the basic elimination of old internal combustion locomotives by 2027, with locomotive, locomotive supporting signaling/electrical equipment and other equipment bidding and procurement to speed up, and the bidding and delivery process expected to improve.

China's EMU bidding began around 2007, with 2013-2017 being the peak period for bidding. According to the approximately 12-year cycle for EMU maintenance, it has now entered the phase of increased aftermarket volume. As of August 2024, China Railway Group has tendered a total of 833 advanced EMU maintenance projects in 2024, including 509 fifth-level maintenance projects, accounting for 61%, and CRRC has signed a total of 39.13 billion yuan in railroad equipment maintenance orders (of which 28.46 billion yuan is for advanced EMU maintenance), exceeding the 33.37 billion yuan revenue volume of this business in 2023. With the accelerated equipment replacement, increased maintenance and aftermarket volume for EMUs, and improved bidding and delivery of new locomotives, the railroad equipment sector is once again entering a peak cycle.

Benefiting symbols: Key recommendations include Henan Thinker Automatic Equipment (603508.SH), CRRC Corporation (601766.SH), China Railway Signal & Communication Corporation (688009.SH), Times Electric (688187.SH), among others. Other related symbols include Nanjing Kangni Mechanical&Electrical (603111.SH) and other core component manufacturers.

Risk reminder: Risks such as railroad investment falling short of expectations, changes in industry policies, and macroeconomic environment changes.

The translation is provided by third-party software.


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