Guosheng Securities: Railway Informationization Investment Expected to Accelerate Under the Wave of Large-scale Equipment Updates

According to the Intelligent Finance APP, Guosheng Securities released a research report stating that the large-scale equipment renewal cycle of railway and urban rail transit is approaching, and the overall fixed asset investment is at a turning point, with the industry's prosperity expected to accelerate year by year. Under the wave of railway renewal and replacement, information technology investment is an important trend, and the investment value will be concentrated in sub-sectors closely related to technological innovation and application expansion, such as intelligent equipment and operation maintenance, technological innovation, 5G + big data + artificial intelligence technology integration, etc. Recommended stocks to watch include: Jiaxun Feihong (300213.SZ) (railway command and dispatch system/special communication), China Railway Signal & Communication (688009.SH) (high-speed maglev operation control system/signal system), Brilliant Technology (002296.SZ) (train operation control system/automatic ticketing system), and Thinking Electronic Control (603508.SH) (train operation control system).

Macro level: The large-scale equipment renewal cycle of railway and urban rail transit is approaching, the overall fixed asset investment is at a turning point, and the industry's prosperity is expected to accelerate year by year:

The total railway investment is approaching a "rebound" turning point, and the ten-year renewal cycle will restart. From 2014 to 2023, the railway investment completed 808.8 / 823.8 / 801.5 / 801.0 / 802.8 / 802.9 / 781.9 / 748.9 / 710.9 / 765.4 billion yuan respectively. It can be seen that since 2020, railway investment has been declining year by year, but in 2023, there was a rebound with a total of 764.5 billion yuan, a year-on-year increase of 7.5%; from January to April 2024, the national railway completed fixed asset investment of 184.9 billion yuan, a year-on-year increase of 10.5%.

The purchase volume of Fuxing high-speed EMU exceeds expectations, demonstrating the enthusiasm of national railway investment. The "Intelligent Configuration EMU Purchase Project of Fuxing High-speed 350km/h" is one of the important tasks executed by the national railway group every year. The first bidding announcement in 2024 shows a purchase volume of 165 sets (aggregated in different configurations), exceeding the purchase volume of previous years in 2023 (103/55/6 sets).

Guosheng Securities believes that due to factors such as equipment service life, ten years is a major cycle for railway investment. After a full ten years, a large-scale equipment renewal cycle will restart. Therefore, the total investment in railway fixed assets will show a year-on-year upward trend at the beginning of the cycle with a relatively large absolute amount, and will decrease year by year towards the end of the cycle. The turning point in 2023, the trend of year-on-year increase in investment in the first four months of 2024, and the volume of the first phase of EMU purchases in 2024 exceeding historical levels from the previous year all strongly confirm that the new cycle trend of railway investment has gradually emerged. Guosheng Securities predicts that in the next three years, there will be a golden period of various product renewals and new product deployments overlaid in addition to the strong enthusiasm shown by the national railway in investment, and the total amount of fixed asset investment in railways will gradually increase.

Medium-term level: Under the wave of large-scale equipment renewal, railway information technology investment is accelerating: Policy Support: In September 2023, China State Railway Group Co., Ltd. issued the "Digital Railway Plan". According to the plan, by 2027, the level of railway digitization will be significantly improved, key areas will be intelligentized, and by 2035, the digital transformation of railways will be fully completed, with a comprehensive improvement in the level of intelligence in all railway business areas. According to the "14th Five-Year Plan for Railway Science and Technology Innovation" issued by the National Railway Administration, the construction of the Intelligent Railway Technology System Architecture 2.0 version will be established. By 2025, intelligent railway technology will achieve comprehensive breakthroughs, including technological innovations in intelligent construction, equipment, and operations.

Industry Response: At a State Council press conference in February 2024, the National Railway Administration stated that it will formulate emission standards and management measures for internal combustion locomotives, improve and update subsidy policies, and strive to achieve the basic elimination of old internal combustion locomotives by 2027. This is also a specific action taken by the railway industry to implement the Party Central Committee's initiative to promote large-scale equipment updates.

Guosheng Securities believes that under the wave of railway renewal and replacement, investment in informatization is an important trend. The investment value will be concentrated in segmented areas closely related to technological innovation and application expansion, such as intelligent equipment and operation, technological innovation, and the integration of technologies such as 5G, big data, and artificial intelligence.

Micro Perspective: AI Empowers the Progress of Railway Intelligence.

AI technology can accelerate the comprehensive intelligent upgrade of railway systems. For example, AI technology can be used for safety monitoring (AI video analysis actively reports anomalies), intelligent detection and maintenance (early identification of faults and predictive maintenance), intelligent scheduling (optimizing train operation plans), passenger service optimization (analyzing passenger behavior and preferences), intelligent inspection, operational efficiency analysis, intelligent customer service, and many other areas. In practical applications, Jiaxun Feihong has launched the "Feihong Anshi Platform" for railway visual capabilities, which separates business systems from visual services through platformization of intelligent vision. By standardizing algorithms and models, dynamic management of intelligent visual capabilities is achieved. They have also introduced the first large-scale technology product in the railway industry, the "Railway AI Knowledge Intelligent Assistant", which has been trialed in some railway bureaus, local railways, and urban rail transit systems