On May 10, 2024, China Railway Group issued the first tender notice for 2024 EMUs. The scope of the tender includes: 350 km per hour Fuxing intelligent EMU (8 groups), number 132; 350 km per hour Fuxing intelligent alpine EMU (8 groups), number 13 groups; 350 km per hour Fuxing intelligent configuration EMU (17 groups), number 20 groups (10 trains), with a total of 165 units. The scale of the first tender has exceeded 2023 (164 groups for the whole year) , the number of tenders increased significantly.

1-4M24 National railway investment accelerated, the number of EMU tenders increased dramatically in 24, and demand for railway equipment continued to recover.

According to the National Railway Administration, national railway fixed asset investment was +7.5% year over year in '23, 1-4M24 was +10.5% year over year, and investment volume grew at an accelerated pace.

Furthermore, 1-3M24 national railway passenger traffic was +28.5% year-on-year. As railway investment increased at an accelerated pace and passenger traffic continued to rise, China Railway Group EMU tenders continued to pick up. The initial tender scale for the “Fuxing” EMU with a speed of 350 kilometers per hour in 24 reached 165 units, and the tender scale has already exceeded 23 for the whole of 23 years (164 groups were tendered for the whole of '23, and 103 for the first time in June '23).

Demand for railway equipment is picking up, and institutions are optimistic about the company's revenue growth in the new EMU car construction business.

According to the Guojin Securities Research Report, Class 5 EMU repairs have entered a period of explosion, and the maintenance business is expected to increase rapidly in 2024.

EMU operation required level 5 repair for 4.8 million kilometers or about 12 years. According to the National Railway Administration, EMU ownership increased 200% in five years from 2011 to 2016, corresponding to the explosion of grade 5 repairs around 23.

Furthermore, the executive meeting of the State Council is promoting the upgrading of rail transit equipment and is optimistic about the release of demand for railway equipment renewal. In March 2024, the executive of the State Council reviewed and approved the “Action Plan to Promote Large-scale Equipment Renewal and Trade-in of Consumer Goods”. The conference stated that fiscal, tax, financial and other policy support should be increased, and transportation equipment renewal and transformation should be promoted in an orderly manner. Furthermore, the State Railway Administration proposed in 2024 that it will improve the renewal subsidy policy in the future to basically eliminate old internal combustion locomotives by 2027. Encouraged by the policy, the pace of upgrading and replacing railway equipment is expected to accelerate, which is beneficial to the long-term revenue growth of the company's railway equipment business.

Railway equipment related enterprises:

CRRC (01766): According to the China Railway Group Tendering Network, 361 EMU advanced repair groups were first tendered in 2024, of which 207 were five-level. The scale of the first tender for advanced repairs has already surpassed the whole of 2023 (290 advanced training groups in 2023, of which 108 groups are level 5). From December 2023 to March 2024, the company signed an EMU advanced revision order of 14.78 billion yuan, accounting for 6.6% of 2022 revenue, and a large order amount. Level 5 repairs will replace EMU parts on a large scale, and I am optimistic about the rapid growth of the company's EMU maintenance business.

Times Electric (03898): Times Electric's business once again recorded strong growth in the first quarter. The rail transit business regained vitality, and improved performance also reflected the market's excessive concern about the prospects of emerging equipment businesses such as IGBT. Considering that China Railway is about to launch the first round of tenders this year, J.P. Morgan expects Shidai Electric's rail transit equipment business demand prospects to improve markedly. At the same time, due to favorable market conditions in the first half of the year, the emerging equipment business is also expected to improve. Under the Mainland equipment trade-in policy, Daiwa Securities Research anticipates a 30% increase in the company's maintenance demand and a 4% increase in its railway business revenue. The volume of new purchases will remain stable this year.