More tender invitation from CR in 2024 yoy to fuel earnings growth

On 10 May 2024, China Railway (CR) announced its invitation to tender for procuring Fuxing EMUs. The invitation includes 132 sets (8-carriage) of Fuxing EMUs at 350km/h, 13 sets (8-carriage) for plateau and cold areas, and 20 sets (10-carriage) at the same speed, totaling 165 for 2024 ytd (vs 2023: 164). We project CRRC’s 2024/2025/2026 attributable EPS at RMB0.47/0.50/0.53. CRRC’s status as a rail transit equipment global leader should help it benefit from rising tender invitations for MUs and the upcoming extensive advanced repair. In view of the H/A discount of c. 30% in the past year, we value the A-/H-shares at 18/12.6x 2024E PE, vs its peers’ average of 15.4x on iFind consensus. Our target prices for its A-/H-shares are RMB8.46/HKD6.4. BUY on both.
National railway fixed-asset investment grew 10.5% yoy in 4M24
In 4M24, the national railway fixed-asset investment (FAI) grew 10.5% yoy to RMB184.9bn, a further increase from the 9.86% yoy in 3M24. Should the national railway FAI maintain 10% yoy growth, total FAI would be RMB841bn in 2024. The sustained enhancement in railway FAI should in our view drive further tender invitations for MUs and advanced repair projects.
Railway passenger volume and freight transportation improving
In 2023, the rally in China’s railway passenger volume beat market expectations, reaching a total of 3,685mn (+128.8% yoy). On 1 May 2024, national railway passengers set a single-day record of 20.69mn, with 14.10mn traveling by MUs, also a single-day record. During 29 April-6 May, the number of passengers taking trains reached 137mn (+3% yoy), with an average of 11,980 passenger trains operating daily (+5.4% yoy). During the May Day holiday, freight transportation also grew robustly, with an average of 177k loaded trains per day, up 1.4% yoy. Improving railway passenger volume and freight transportation should support continued robust tender invitation from CR, in our view.
Advanced repair to contribute to sustained earnings growth
China is seeing an extensive period for advanced repair of MUs. MU ownership in China grew rapidly during 2012-2015. The tier-5 overhaul period in China corresponds to operating mileage of about 12 years of operation. We thus expect China’s MUs to enter a critical stage of advanced repair in 2024/2025. In January 2024, CR issued the first tender invitation for advanced repair of MUs, comprising the repair of 361 sets, of which 207 (57%) were tier-5 overhaul. On 4 March 2024, CRRC announced contracts signed during December 2023-March 2024, including RMB14.78bn for advanced repair of MUs. We anticipate advanced repairs of MUs to make incremental earnings contribution to CRRC.
Risks: railway FAI falling short of our expectations; disappointing overseas development.