Rail transit equipment revenue jumped; BUY on both
CRRC’s 2023 revenue/attributable net profit (NP)/recurring NP were RMB234,262/ 11,712/9,106mn (+5.08/0.50/14.24% yoy), with 4Q23 revenue/attributable NP at RMB91,226/5,560mn (+4.41/-1.18% yoy, +63.69/106.60% qoq). We project 2024/2025/2026 attributable EPS at RMB0.47/0.53/0.57, corresponding to 14.15/12.48/11.52x PE. CRRC, a world-leading rail transit equipment supplier, should in our view fully benefit from a rebound in Multiple Unit (MU) bids and ramp-up in demand for maintenance & renewal under the equipment renewal policy. Also, its H-shares have traded at a c 30% discount to its A-shares in the past year; we thus value the A/H-shares at 17/11.9x 2024E PE. Our target prices are RMB7.99/HKD6.15. BUY on the A/H-shares.
Revenue from rail transit equipment business up 18.05% yoy in 2023
For 2023, revenues from rail transit equipment/new industry/urban rail transit & infrastructure were RMB98,191/80,624/50,334mn (+18.05/+4.56/-9.68% yoy). For the rail transit equipment business, revenues from the locomotive/passenger train/MU/goods train segments were RMB27,985/9,699/41,829/18,678mn; revenue from the rail transit equipment repair & modification segment was RMB33,371mn. For the new industry business, the wind-power segment contributed revenue of RMB30,998mn. For 2023, CRRC’s newly signed orders were worth c RMB298.6bn.
Railway fixed-asset investment stepping up
For 2023, China’s railway fixed asset investment (FAI) was RMB764.5bn (+7.5% yoy), and its railway passenger traffic picked up, with annual passenger volume jumping 128.8% yoy to 3,685mn. The fast recovery of passenger traffic in 2023 resulted in a rebound in MU bids. For 2023, 164 MUs with a speed of 350km/h were put out to tender by China Railway, vs 83/29.5/92 in 2020/2021/2022. We expect the rebound in MU bids, which could steadily gather steam, to drive up CRRC’s revenue from new MU business for 2024.
Advanced refurbishment of MUs to continue contributing earnings
Advanced refurbishment is booming. During 2012-2015, the number of MUs in China grew rapidly, at a CAGR of 30.6%. As the Grade-E refurbishment of MUs has a cycle of 4.80±0.10mn km or 12 years, we believe 2024-2025 should be a critical period for advanced refurbishment and renewal of MUs at home. In January 2024, China Railway put out a tender for advanced refurbishment of 361 MUs (including Grade-E refurbishment of 207 MUs, or 57% of the total) for the first time. On 4 March, CRRC announced contracts signed for December 2023-March 2024, including MU advanced refurbishment contracts of RMB14.78bn. We expect advanced refurbishment of MUs to continue contributing earnings going forward.
Risks: lower railway FAI than we expect; disappointing progress in overseas business expansion.