China Post Securities released a research report saying that in 2024H1, the national railway will complete an investment of 337.3 billion yuan in fixed assets, a year-on-year increase of 10.6%, setting a new historical record, and there is a high probability that the annual investment in 2024 will return to the 800 billion mark. In the first half of the year, the country's railways sent a total of 2.096 billion passengers, and the passenger turnover reached 777.952 billion person-kilometers, an increase of 18.4% and 14.1% year-on-year respectively, both hitting a record high in the same period in history. With the surge in demand for rail passenger transport and the obvious improvement in the profitability of China Railway Group, rail investment is expected to increase. In addition, according to the goals of the 14th Five-Year Plan, it is estimated that an average of 3,000 kilometers of new railways will be built in 2024 and 2025; Among them, 2,500 kilometers of high-speed rail are expected to be higher than the average for 2021-2023.

The main views of China Post Securities are as follows:

In 24H1, the investment in fixed assets of the railway set a new record, and the annual investment is expected to return to 800 billion

In 2024H1, the national railway completed 337.3 billion yuan of fixed asset investment, a year-on-year increase of 10.6%, setting a new historical record. There is a high probability that the annual investment in 2024 will return to the 800 billion mark. From 2020 to 2023, the number of 350-kilometer EMUs purchased by China Railway Group in each year will be 83, 29.5, 92 and 164 respectively. In May 2024, the number of 165 groups was given in the first tender, which exceeded expectations. In addition, from the perspective of the bidding time, the first round of bidding in 2024 will be on May 10, which is also earlier than June 5 in the first round of bidding in 2023.

As of July 2024, the amount of EMU sales and maintenance contracts signed by CRRC has far exceeded that of the whole year of 2023, and the contract orders in hand are very full. CRRC is a major company in the mass transit vehicle and has directly benefited from the high increase in tenders from China Railway Group. Judging from the signing of contracts disclosed by CRRC, it can also confirm the high prosperity of rail transit equipment. From December 2023 to July 2024, CRRC has signed more than 40 billion yuan of domestic EMU sales contracts and nearly 28.5 billion yuan of domestic EMU maintenance contracts, and the amount of EMU sales and maintenance contracts has far exceeded the total amount for the whole year of 2023.

Railway end rail transit equipment is expected to usher in a high boom, the main reasons are as follows:

(1) The demand for railway passenger transport has increased significantly + the profitability of China Railway Group has improved significantly, and railway investment has increased

In 2024H1, the country's railways will send a total of 2.096 billion passengers, and the passenger turnover will reach 777.952 billion person-kilometers, an increase of 18.4% and 14.1% year-on-year respectively, both hitting a record high in the same period in history. With the steady recovery of the domestic economy and the acceleration of personnel mobility, the demand for domestic railway passenger transportation is becoming increasingly strong. Judging from the operation of China Railway Group, the epidemic affected passenger traffic from 2020 to 2022, resulting in large losses, and in 2023, the net profit attributable to the parent company of China Railway will be 3.3 billion yuan, turning losses into profits, and even higher than the net profit in 2019 before the epidemic. With the surge in demand for rail passenger transport and the obvious improvement in the profitability of China Railway Group, rail investment is expected to increase.

(2) In the sprint stage of the 14th Five-Year Plan, the 2024-2025 high-speed rail construction mileage target is expected to be higher than the average value of 2021-2023

China's railway construction has a strong planning and a high historical completion rate. According to the 14th Five-Year Transportation Plan, by 2025, the length of railways will be 165,000 kilometers, and the high-speed rail will be 50,000 kilometers. By the end of 2023, China's railway mileage is 159,000 kilometers, of which 45,000 kilometers are high-speed rail, accounting for about 28% In 2021/2022/2023, China's new railway lines put into operation are 4208/4100/3637 kilometers respectively, with an average of 3,982 kilometers; The new high-speed rail lines put into operation are 2168/2081/2776 kilometers respectively, with an average value of 2342 kilometers; The proportion of high-speed rail in the newly put into operation lines is 52%/51%/76% respectively. According to the goals of the 14th Five-Year Plan, China Post Securities estimates that an average of 3,000 kilometers of new railways will be built in 2024 and 2025; Among them, 2,500 kilometers of high-speed rail are expected to be higher than the average for 2021-2023.

(3) Aftermarket maintenance: the five-level repair of EMUs ushered in a centralized release period

The maintenance of EMUs in China is divided into five levels: the first and second levels are called "daily repair"; Levels 3, 4, and 5 are called "advanced cultivation". At present, the third-level repair has been basically undertaken by the EMU of the Railway Bureau (the self-repair rate of the China Railway Group is about 90%), the fourth-level repair is jointly undertaken by the EMU and CRRC (the self-repair rate of the China Railway Group is about 60%), and the fifth-level repair is undertaken by the CRRC. If it is calculated according to the fourth-level repair in 5 years and the five-year repair in 10 years, the EMUs put into operation after 2019 will successively usher in the fourth-level repair, and the EMUs invested after 2014 will successively usher in the fifth-level repair. Judging from historical data, the annual new increment of EMUs in 2009-2013 in 100-200 groups, since 2014 to increase the procurement efforts to more than 300 groups, EMU five-level repair is expected to usher in a concentrated release period.

It is recommended to pay attention to: CRRC (601766.SH), China General Number (688009.SH), Thinking Train Control (603508.SH), Traffic Control Technology (688015.SH), Kangni Electromechanical (603111.SH), Jinchuang Group (603680.SH), China Railway Industry (600528.SH), Railway Construction Heavy Industry (688425.SH), etc.

Risk warning: railway passenger traffic is lower than expected; The investment in fixed assets of domestic railways is less than expected.