CRRC Times Electric: Rapid Development in Rail Transit, Betting on Mega Infrastructure Again?

Times Electric (3898.HK/688187.SH) released its first quarter financial report for 2024 after the Hong Kong stock market closed on the evening of April 25, 2024, Beijing time, with the following key points:

1. Revenue: In the first quarter of 2024, Times Electric achieved a revenue of 3.93 billion RMB, a year-on-year increase of 27.2%. The revenue growth in this quarter was mainly driven by the traditional rail transit business and power semiconductor business. Specifically, the rail transit equipment business achieved a revenue of 2.12 billion RMB, with a year-on-year growth of 43.74%, showing a significant acceleration; the growth rate of the new equipment business fell to 13.18%;

2. Gross Profit Margin: Times Electric.HK had a gross profit margin of 34.1% in the first quarter of 2024, an increase of 1.7 percentage points year-on-year. The increase in gross profit margin was mainly due to the accelerated growth of the traditional rail transit business with higher profit margins, leading to a structured improvement in the company's gross profit margin;

3. Net Profit: Times Electric.CN achieved a net profit attributable to the parent company of 570 million RMB in the first quarter of 2024, a year-on-year increase of 30.6%. The growth in the company's profit was mainly driven by revenue and gross profit margin, with the traditional rail transit business being the largest contributor.

Dolphin's Viewpoint:

Overall, although there are some fluctuations in Times Electric's business performance, it is still relatively good. Despite the new equipment business growth rate dropping to 13.18%, the traditional rail transit business of the company achieved a growth rate of 43.74% in this quarter. Since the traditional rail transit business is also the largest source of the company's profit, both the gross profit margin and quarterly profit of the company continue to show positive trends.

The company originally viewed the emerging equipment business as a growth point, but now, affected by the industry environment, the business growth rate has significantly declined, impacting the growth expectations for this segment of the business. Fortunately, the traditional rail transit business strengthened in this quarter, continuing to drive the company's performance growth.

Even after the weakening of growth expectations for new businesses, the company still maintains a double-digit growth rate and a 2% dividend yield. Considering the company's market capitalization of 41.3 billion HKD, the company roughly corresponds to an overall valuation of around 10-11 times PE ratio Considering the liquidity discount of Hong Kong stocks, the company's current overall position is relatively reasonable.

The following is Dolphin's specific analysis of the financial report of CRRC Times Electric:

1. Core Indicators:

1.1 Revenue End

In the first quarter of 2024, Times Electric achieved revenue of 3.925 billion yuan, a year-on-year increase of 27.2%. The company's revenue growth mainly comes from the growth of traditional rail transit business and power semiconductor business.

Specifically:

1) Rail Transit Equipment Business: In this quarter, the rail transit equipment business achieved revenue of 2.12 billion yuan, a year-on-year increase of 43.74%, with a significant acceleration in growth this quarter (compared to only 2% for the full year of the previous year);

2) Emerging Equipment Business: In this quarter, the emerging equipment business achieved revenue of 1.769 billion yuan, a year-on-year increase of 13.18%. Compared to the over 60% growth rate of the previous year, there was a significant slowdown this quarter. In this quarter, power semiconductor devices and industrial inverters still maintained a growth rate of nearly 20%, while the growth rate of new energy vehicle electric drive systems dropped significantly to around 10%.

Overall, Dolphin believes that the revenue growth of Times Electric in this quarter is mainly due to the accelerated recovery of the rail transit business. After experiencing high growth in the early stage, the growth rate of the new equipment business has significantly slowed down, to some extent also affected by the new energy industry.

1.2 Gross Profit and Gross Margin

In the first quarter of 2024, Times Electric achieved a gross profit of 1.337 billion yuan, a year-on-year increase of 33.7%. The company's gross profit growth is faster than the revenue end, mainly benefiting from the upward trend of the gross margin.

The gross margin of Times Electric in this quarter is 34.1%, a year-on-year increase of 1.7 percentage points. The increase in gross margin this quarter is mainly due to the accelerated growth of the traditional rail transit business with a higher gross margin, leading to a structured improvement in the gross margin.

The current gross margin of the company's traditional rail transit business is around 38%, significantly higher than the emerging equipment business, and is the main source of the company's profit contribution. With the acceleration of the company's rail transit business growth, the overall gross margin of the company is expected to continue to increase.

2. Expenses and Profit Situation: Despite rigid expenses, profits continue to grow at a high rate

2.1 Operating Expenses

In the first quarter of 2024, Times Electric's operating expenses were 883 million yuan, a year-on-year increase of 26%. Operating expenses grew in sync with revenue, and the operating expense ratio this quarter was 22.5%, remaining relatively stable 1) Research and Development Expenses: This is the largest operating expense for the company. R&D expenses for this quarter were 457 million yuan, a year-on-year increase of 23.2%. The R&D expense ratio is 11.6%, a slight decrease of 0.4 percentage points compared to the previous year. The increase in absolute value is mainly due to increased personnel salaries and technical service fees.

2) Sales Expenses: Sales expenses for this quarter were 251 million yuan, a year-on-year increase of 41.8%. The sales expense ratio is 6.4%, a slight increase of 0.7 percentage points compared to the previous year; the increase in sales expenses is mainly due to the expansion of sales scale.

3) Administrative Expenses: Administrative expenses for this quarter were 175 million yuan, a year-on-year increase of 14.4%. The administrative expense ratio is 4.5%, a slight decrease of 0.5 percentage points. The increase in administrative expenses is mainly due to employee salaries, depreciation and amortization expenses, and maintenance fees.

2.2 Net Profit Situation

In the first quarter of 2024, Times Electric achieved a net profit attributable to shareholders of 568 million yuan, a year-on-year increase of 30.6%. The net profit growth rate is slightly higher than the revenue growth rate, and the company's net profit margin for this quarter is 14.7%, a slight increase mainly due to the improvement in the company's gross profit margin.

Dolphin Research on CRRC Times Electric historical articles review:

Financial Reports

March 29, 2024 Financial Report Review "CRRC Times Electric: New Business Gallop, Rail Transit Still Stable"

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

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

October 17, 2022 Financial Report Review "Times Electric Third Quarter Report Overview"

August 27, 2022 Financial Report Review "Spring Plowing and Autumn Harvest, Times Electric in the 'Core' Era"

In-depth Analysis

June 14, 2022 Company In-depth Analysis "Dancing on the Safety Cushion, Will IGBT Create a New Era for Times Electric?" May 16, 2022 Company In-depth Analysis "Times Electric: Sprinting on Rail Transportation, or Riding Another IGBT East Wind?"

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