Damo expects CRRC and Times Electric to account for 18% and 16% of locomotive revenue, respectively, by 2026.
The Zhitong Finance App learned that Morgan Stanley released a research report saying that the market's optimism about maintaining growth and equipment upgrades in the mainland high-speed rail sector has been largely digested. Given the good growth potential of emerging businesses, Times Electric (03898) maintained its “increase” rating, and the target price was raised from HK$27 to HK$33. The bank also raised the Group's earnings per share estimate by 4% this year. It is expected that this year's revenue and net profit will increase by 13% and 17%, respectively.
According to the report, CRRC (01766)'s earnings estimates per share for this year and next two years were lowered by 7% and 11%, respectively, to reflect the weakness of the new business, and it is expected that its revenue and net profit will increase by 3% and 9%, respectively, this year, while gross margin will improve. The bank lowered the Group's target price for H shares from HK$4.5 to HK$4.2. Due to reasonable valuation, the rating was downgraded from “increase in holdings” to “in sync with the market”. The bank indicates that there are more electric fans in the era than CRRC.
Damo said that the market generally expects that phasing out internal combustion locomotives will speed up procurement of new locomotives. The bank expects an average annual sales volume of 200 groups from 2024 to 26, while the total sales volume in 2026 is expected to be 1,500 groups, which means a three-year compound annual growth rate of 18%. The bank expects CRRC and Times Electric's share of locomotive revenue to reach 18% and 16% respectively by 2026, up from 12% and 13% each in 2023.