CRRC Times Electric: New business is booming, while rail transit remains stable

Times Electric (3898.HK/688187.SH) released its 2023 fourth quarter financial report after the Hong Kong stock market closed on the evening of March 28, 2024 Beijing time, with the following key points:

1. Overall Performance: In the fourth quarter, Times Electric achieved revenue of 7.7 billion RMB, a year-on-year increase of 7.6%, with revenue growth mainly driven by the emerging equipment business. The gross profit margin for the quarter was 36.5%, with the increase in gross profit margin mainly due to the recovery of business gross profit margin after the impact of the epidemic receded. The company achieved a net profit attributable to shareholders of 980 million RMB in the fourth quarter, a year-on-year increase of 13.6%.

2. Business Segments: Stable core business, growth in new business. The current emerging equipment business has grown to account for 40% of revenue, with both businesses being important to the company.

1) Traditional Rail Transit Business: In the second half of the year, the traditional rail transit equipment business of Times Electric achieved revenue of 8.219 billion RMB, a year-on-year increase of 2%, maintaining steady growth;

2) Emerging Equipment Business: In the second half of the year, the emerging equipment business of Times Electric achieved revenue of 4.983 billion RMB, a year-on-year increase of 50.1%, which is the company's largest source of growth. Power semiconductors, new energy electric drive, etc., all achieved growth of over 50%, mainly driven by demand in the new energy field.

Overall, Times Electric's financial report is generally in line with expectations. The company's traditional rail transit business has stabilized its core business, while the emerging equipment business continues to maintain growth momentum.

Outlook for the new year: ① Traditional Rail Transit Business: China's railway construction will continue to grow steadily, and the company's core business will remain stable; ② Emerging Equipment Business: The current business accounts for nearly 40%, especially in the IGBT module market in the rail transit and power grid fields, where it ranks first, and ranks third in the power module market for new energy passenger vehicles. Due to demand, growth is expected to continue in 2024, but at a slightly slower paceTherefore, Times Electric Company should still be divided into two parts for analysis, "traditional business and emerging equipment business". The traditional business builds the company's foundation and provides a valuation floor. Breaking it down, the traditional business can bring the company around 2.2 billion yuan in profit, which is the most stable part. At a 10x PE ratio, corresponding to around 22 billion yuan (24 billion Hong Kong dollars) market value, this is the relatively solid bottom range for the company. The company's upside potential mainly depends on the development and expected space of the emerging equipment business.

Below is Dolphin's specific analysis of CRRC Times Electric's financial report:

1. Overall Performance: Steady Growth

1.1 Revenue

In 2023, Times Electric achieved revenue of 21.8 billion yuan, a year-on-year growth of 20.88%. The company's revenue growth mainly comes from the high growth of the emerging equipment business.

Looking at the quarters, Times Electric achieved revenue of 7.704 billion yuan in the fourth quarter, a year-on-year growth of 7.6%. The company's fourth-quarter revenue is the traditional peak quarter, mainly due to the confirmation of delivery of rail transit equipment at the end of the year.

1.2 Gross Profit and Gross Margin

In 2023, Times Electric achieved a gross profit of 7.382 billion yuan, a year-on-year growth of 25.22%. The growth in gross profit comes from revenue growth and an increase in gross margin.

Looking at the quarters, Times Electric achieved a gross profit of 2.913 billion yuan in the fourth quarter, a year-on-year growth of 23.5%. The gross margin for the fourth quarter was 36.5%, a year-on-year increase of 4.7%. The year-on-year increase in gross margin is mainly driven by the simultaneous increase in gross margins of traditional rail transit and emerging equipment.

1.3 Operating Expenses

In the fourth quarter, Times Electric's operating expenses were 1.879 billion yuan, a year-on-year growth of 24.7%. This is mainly due to the increase in selling expenses, with an operating expense ratio of 24.4% this quarter, showing some improvement.

1. Research and Development Expenses: This is the largest component of the company's operating expenses. Research and development expenses for this quarter were 0.753 billion yuan, a year-on-year growth of 8.8%. The R&D expense ratio was 9.8%, similar to last year. The increase in absolute value is mainly due to an increase in personnel salaries and material consumption.

2. Selling Expenses: Selling expenses for this quarter were 0.709 billion yuan, a year-on-year growth of 61.5%. The selling expense ratio was 9.2%, a 3.1 percentage point increase compared to last year; the increase in selling expenses was mainly due to the increase in selling expenses of the emerging equipment business.

3. Administrative Expenses: Administrative expenses for this quarter were 0.417 billion yuan, a year-on-year growth of 10.9%. The administrative expense ratio was 5.4%, a slight increase of 0.1 percentage pointThe increase in management expenses is mainly due to the increase in labor costs affecting.

1.4 Net Profit Situation

In the full year of 2023, Era Electric achieved a net profit attributable to the parent company of 3.15 billion yuan, a year-on-year increase of 21.53%. The full-year profit growth was mainly benefited from the revenue of new equipment business and the improvement in gross profit margin. However, looking at the fourth quarter alone, the company achieved a net profit attributable to the parent company of 0.984 billion yuan, a year-on-year decrease of 0.9%. This is due to the increase in expenses while revenue growth slowed down.

II. Business Segmentation: Stable Base, Growing New Business

With the expansion of new businesses, the company is gradually transitioning to the joint development of rail transit equipment and emerging equipment businesses. Currently, the emerging equipment business has grown to account for 40% of the revenue, and both businesses are important to the company.

2.1 Traditional Rail Transit Business

In 2023, Era Electric's traditional rail transit business achieved revenue of 12.91 billion yuan, a year-on-year increase of 2%. The rail transit business continues to maintain steady growth.

Looking at the second half of the year, the traditional rail transit business achieved revenue of 8.219 billion yuan, a year-on-year increase of 2%. In detail, ①Rail Transit Electrical Equipment achieved revenue of 6.347 billion yuan in the second half of the year, a year-on-year increase of 3.5%. This is the largest item in the rail transit business, continuing to maintain steady growth; ②Railway Engineering Machinery achieved revenue of 1.203 billion yuan in the second half of the year, a year-on-year increase of 3%; ③Communication Signal System achieved revenue of 0.479 billion yuan in the second half of the year, a year-on-year increase of 1.7%.

In the second half of 2023, the company's traditional rail transit equipment business achieved a gross profit of 3.138 billion yuan, a year-on-year increase of 15.2%. The gross profit margin of the traditional rail transit business has risen to 38.2%, previously affected by the epidemic, the gross profit margin had fallen, but now it has returned to a reasonable level.

2.2 Emerging Equipment Business

In 2023, the revenue of Times Electric's emerging equipment business reached 8.732 billion yuan, a year-on-year increase of 69.64%, which was the main driving force behind the company's revenue growth.

Looking at the second half of the year alone, the revenue of the emerging equipment business reached 4.983 billion yuan, a year-on-year increase of 50.1%. In detail, ① Power Semiconductor Discrete Devices remains the largest item in the emerging equipment business, achieving revenue of 1.728 billion yuan in the second half of the year, a year-on-year increase of 62.6%. The growth rate of power semiconductors far exceeds that of traditional rail transit equipment (2%), mainly due to the continued good growth in new energy, among other factors; ② New Energy Vehicle Electric Drive System Products achieved revenue of 1.076 billion yuan in the second half of the year, a year-on-year increase of 63.8%, maintaining a high growth rate; ③ Industrial Inverter Products achieved revenue of 1.451 billion yuan in the second half of the year, with a year-on-year growth of 38.5%. Industrial inverters are partly used in rail transit, and often perform better in the second half of the year; ④ Other Marine Equipment and Sensor Components achieved revenues of 0.391 billion yuan and 0.337 billion yuan respectively in the second half of the year, with year-on-year growth rates of 48.9% and 18.7%.

In the second half of 2023, the gross profit of the company's emerging equipment business reached 1.575 billion yuan, a year-on-year increase of 73.4%. The growth rate of gross profit in the emerging equipment business exceeded that of revenue growth. The gross profit margin of the company's emerging equipment business in the second half of the year was 31.6%, an increase of 4.2 percentage points year-on-year, reaching a new high. The improvement in the gross profit margin of the emerging equipment business is mainly driven by the development of the company's new energy business, which has led to an increase in related gross profit margins.

Dolphin Research's historical articles on CRRC Times Electric:

Financial Report Seasons

October 26, 2023 Financial Report Review "CRRC Times Electric: Rail Transit Speeding Up Again, Great Potential in Infrastructure?"

March 31, 2023 Financial Report Review "CRRC Times Electric: Rail Transit Facing Challenges, Renewing Itself"

October 17, 2022 Financial Report Review "Times Electric Third Quarter Report Overview"Financial Report Review on August 27, 2022: "Spring Plowing and Autumn Harvest, the 'Core' Era of Times Electric"

In-depth Analysis

Company in-depth analysis on June 14, 2022: "Dancing on the Safety Mat, Will IGBT Create a New Era for Times Electric?"

Company in-depth analysis on May 16, 2022: "Times Electric: Sprinting on Rail Transportation, or Riding the IGBT East Wind?"

Risk disclosure and statement for this article: Dolphin Research Disclaimer and General Disclosure