CRRC Times Electric: Speeding up rail transit, is Hikvision on a different path?
Time Electric (3898.HK/688187.SH) released its second-quarter financial report for 2024 after the Hong Kong stock market closed on the evening of August 23, 2024, Beijing time, with the following highlights:
1. Overall Performance: In the second quarter of 2024, CRRC Time Electric achieved revenue of RMB 6.36 billion, a year-on-year increase of 15.9%, with the revenue growth mainly driven by the rail transit business. The company's net profit attributable to shareholders in the second quarter of 2024 reached RMB 940 million, a year-on-year increase of 30.6%. The profit growth was driven by revenue growth and cost reduction.
2. Business Segmentation: New Energy Sluggish, Rail Transit Accelerating. Although the emerging equipment business has grown to account for 40% of revenue, traditional rail transit remains the company's largest segment.
1) Traditional Rail Transit Business: In the first half of 2024, Time Electric's traditional rail transit equipment business achieved revenue of RMB 6.139 billion, a year-on-year increase of 30.9%. The acceleration of traditional rail transit was the main driver of the company's performance growth this time.
2) Emerging Equipment Business: In the first half of 2024, Time Electric's emerging equipment business achieved revenue of RMB 4.094 billion, a year-on-year increase of 9.2%. Due to downstream demand, the growth rate of the emerging equipment business has significantly declined. Power semiconductors maintained a growth of 26.6%, while other new energy-related businesses experienced a noticeable decline.
Dolphin's Overall View:
Time Electric's financial report this time is overall good. As the company had previously disclosed a profit forecast for the first half of the year, which is consistent with the RMB 15.1 billion in this financial report. For this financial report, the focus can mainly be on the company's revenue and the situation of each business segment.
In terms of revenue in the first half of the year and the second quarter, both maintained double-digit growth, which is still good. As for the significant decline in gross profit margin, it is mainly due to the impact of the company's adjustment of financial statement criteria. Excluding this impact, Dolphin estimates that the company's overall gross profit margin for the first half of the year is still 32%, an increase of 0.9 percentage points year-on-year.
From the segmented data, the company's growth this time mainly came from the growth of traditional rail transit. The previously high-growth emerging equipment business significantly declined this quarter, mainly due to the impact of declining demand in new energy and other areas. The power semiconductor business maintained 26.6% growth, mainly driven by the rail transit business, as a considerable portion of the products are self-supplied.
Both Time Electric and Hikvision have some business serving government and enterprises, but their revenue performance is completely different. Hikvision's government and enterprise business declined by nearly 10% year-on-year, while Time Electric's rail transit business saw a 30% year-on-year growth. Upon closer examination, the "payers" for the two businesses are different. A large part of the rail transit business comes from central enterprises, while the investment in surveillance equipment mainly comes from local and state-owned enterprises. Different financial inputs directly affect the development of the two companies' businesses in terms of specific procurement Although the company's emerging equipment business has been sluggish, affecting the original growth prospects, under the promotion of major directions such as the "Belt and Road Initiative," Times Electric is expected to continue benefiting from the increased investment from central enterprises. The Dolphin believes it is worth observing the sustainability of government-enterprise investments in the railway and other rail transit sectors in the future. If the business can maintain high growth, it will not only drive the company's performance improvement but also enhance investors' confidence, bringing more room for expectations.
Below is Dolphin's specific analysis of the financial report of CRRC Times Electric:
I. Overall Performance: Revenue & Profit, Achieving New Highs in the Same Period
1.1 Revenue End
In the first half of 2024, Times Electric achieved a revenue of RMB 10.284 billion, a year-on-year increase of 19.99%. The growth in revenue of Times Electric mainly came from the expansion of the rail transit equipment business.
Looking at it quarterly, Times Electric achieved a revenue of RMB 6.359 billion in the second quarter, a year-on-year increase of 15.9%. Compared to the previous quarter, the company's revenue end saw a significant improvement.
1.2 Gross Profit and Gross Margin
In the first half of 2024, Times Electric achieved a gross profit of RMB 2.863 billion, a year-on-year increase of 7.5%. The growth in gross profit mainly stemmed from the increase in revenue. Looking at it quarterly, Times Electric achieved a gross profit of RMB 1.526 billion in the second quarter, a year-on-year decrease of 8.3%. The gross profit margin in the second quarter was 24%, a year-on-year decrease of 6.3 percentage points.
The decline in the gross profit margin in the first half of the year was mainly due to the company adjusting the reporting caliber, moving "guarantee-type quality assurance expenses" from "selling expenses" to "operating costs," which directly led to the decline in the data.
Dolphin believes that adding back this expense will make the comparison more meaningful. As the impact of this expense in the first half of the year was around RMB 430 million, if this impact is excluded, the company achieved a gross profit of RMB 3.293 billion in the first half of the year, corresponding to a gross profit margin of 32%, a year-on-year increase of 0.9 percentage points. This is mainly due to the higher gross profit margin rail transit business, which increased its proportion in the first half of the year, driving the overall gross profit margin increase.
1.3 Operating Expenses Situation
In the second quarter of 2024, Times Electric's operating expenses were RMB 698 million, a year-on-year decrease of 31.3%. This was mainly due to the impact of accounting policy adjustments, with a significant decrease in selling expenses. The company's operating expense ratio in the first half of the year was 15.4%, showing a significant decrease 1) Research and Development Expenses: This is the largest operating expense for the company. R&D expenses for this quarter were 488 million yuan, an 11.4% year-on-year increase. The R&D expense ratio is 7.7%, showing a slight decrease. The increase in absolute value is mainly due to personnel salaries and other related costs.
2) Sales Expenses: Sales expenses for this quarter were -48 million yuan. The reason for the negative value is mainly because $TIMES ELECTRIC(688187.SH) adjusted the sales expenses in this report, moving the "guarantee-related quality assurance expenses" to "operating costs". Looking at the entire first half of the year, the company's sales expenses were 203 million yuan, with a sales expense ratio reduced to 2%.
3) Administrative Expenses: Administrative expenses for this quarter were 258 million yuan, a 10.7% year-on-year increase. The administrative expense ratio is 4.1%, relatively stable. The increase in administrative expenses is mainly due to facility maintenance and increased travel and meeting expenses.
1.4 Net Profit Situation
In the first half of 2024, Times Electric achieved a net profit attributable to shareholders of 1.507 billion yuan, a 21.53% year-on-year increase. The profit growth is mainly attributed to the increase in revenue from rail transit business. Looking at the second quarter alone, the company achieved a net profit attributable to shareholders of 939 million yuan, a 30.6% year-on-year increase. While the company's revenue increased, cost and expense items also decreased.
II. Business Segments: New Energy Slump, Rail Transit Accelerates Again
With the expansion of new businesses, the company is gradually transitioning to the simultaneous development of rail transit equipment and emerging equipment businesses. Currently, the emerging equipment business accounts for 40% of the revenue, making both segments important for the company.
2.1 Traditional Rail Transit Business
In the first half of 2024, Times Electric's traditional rail transit business achieved revenue of 6.139 billion yuan, a 30.9% year-on-year increase. The rail transit business growth has significantly accelerated.
Breaking it down, ① Rail Transit Electrical Equipment achieved revenue of 4.947 billion yuan in the first half, a 27.3% year-on-year increase, which is the main source of growth for the company in the first half; ② Rail Transit Engineering Machinery achieved revenue of 557 million yuan in the first half, a 15.6% year-on-year increase ③ Communication Signal System achieved a revenue of 416 million yuan in the first half of the year, a year-on-year increase of 131%.
In the first half of 2024, the traditional rail transit equipment business of the company achieved a gross profit of 1.917 billion yuan, a year-on-year increase of 9.4%. In addition, the gross profit margin of the traditional rail transit business in the first half of the year decreased to 31.2%. **Dolphin believes that the main reason for the significant decrease in gross profit margin here is also mainly due to the impact of "guaranteed quality assurance costs". Under the same caliber, the overall gross profit margin of the company in the first half of the year still increased. Therefore, the gross profit margin of rail transit equipment did not actually decrease by such a large extent.
2.2 Emerging Equipment Business
In the first half of 2024, the emerging equipment business of CRRC Times Electric achieved a revenue of 4.094 billion yuan, a year-on-year increase of 9.2%, with a significant slowdown in growth rate.
Looking into details, ① Power Semiconductor Discrete Devices is still the largest item in the emerging equipment business, achieving a revenue of 1.747 billion yuan in the first half of the year, a year-on-year increase of 26.6%. The growth rate of power semiconductors is similar to that of rail transit electrical equipment (27.3%), mainly driven by traditional rail transit business (part of self-supplied products); ② New Energy Vehicle Electric Drive System Products achieved a revenue of 903 million yuan in the first half of the year, a year-on-year increase of 8.4%. After the slowdown in the growth of the new energy vehicle market, the demand for related products was also affected; ③ Industrial Inverter Products achieved a revenue of 903 million yuan in the first half of the year, a year-on-year decrease of 3.6%; ④ Other marine equipment and sensor components achieved revenues of 405 million yuan and 136 million yuan respectively in the first half of the year, with year-on-year increases of 18.4% and decreases of 47.1% respectively.
In the first half of 2024, the company's emerging equipment business achieved a gross profit of 939 million yuan, a year-on-year increase of 6%. The gross profit margin of the emerging equipment business in the first half of the year was 22.9%, a year-on-year decrease of 0.7 percentage points. The decline in business gross profit margin was also affected by financial statement adjustments.
Dolphin Research on CRRC Times Electric's historical articles:
Financial Report Season
April 25, 2024 Financial Report Review "CRRC Times Electric: Rail Transit Galloping, Betting on Mega Infrastructure Again?" Link 2024 年 3 月 29 日财报点评《 CRRC Times Electric: New Business Galloping, Rail Transit Still Stable》
2023 年 10 月 26 日财报点评《 CRRC Times Electric: Rail Transit Speeding Up Again, Great Potential in Infrastructure?》
2023 年 3 月 31 日财报点评《 CRRC Times Electric: Rail Transit Overcoming Challenges, Renewing with New Vitality》
2022 年 10 月 17 日财报点评《 Times Electric Third Quarter Report Overview》
2022 年 8 月 27 日财报点评《 Spring Plowing and Autumn Harvest, Times Electric's "Core" Era》
In-depth
2022 年 6 月 14 日公司深度《 Bouncing on the Safety Mat, Will IGBT Create a New Era for Times Electric?》
2022 年 5 月 16 日公司深度《 Times Electric: Galloping on Rail Transit, or Riding the IGBT Wind?》
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