In the Hong Kong stock market, there is a sector that has always been regarded as “stable and happy.”

Most of the individual stocks have a large revenue scale and a strong money-absorbing effect. Sectors like this are often “well-off” for steady investors.

On April 15, the high-speed rail infrastructure sector picked up strongly, closing with a sharp rise of 5.68%, leading all industry sectors, which clearly attracted attention. Individual stocks all rose one after another. Among them, CRRC (01766) surged 10.59%, China Communications Construction rose 5.32%, and China Railway and China Express all rose more than 4%. At a time when all three major indices of Hong Kong stocks are turning green, the trend of high-speed rail infrastructure concept stocks has clearly verified this.

Regarding the “strengthening of the Chinese character” and the rise in high-speed rail infrastructure concept stocks, the market generally believes that this is due to the new “National Nine Rules” catalyst.

Among them, China Post Securities stated that the new “National Nine Rules” of the capital market proposed strengthening the supervision of cash dividends for listed companies, increasing incentives for companies with high-quality dividends, and taking more measures to promote higher dividend rates and enhance dividend stability, sustainability, and predictability. The introduction of this policy may benefit the long-term performance of high-dividend assets in the transportation sector. The bank believes that some high-quality listed companies for long-term highways and railways have both weak cyclicality and high dividend attributes. As risk-free returns continue to decline in the entire market, they are still expected to generate excess profits.

However, it should be noted that although high-speed rail infrastructure concept stocks performed well in the overall sluggish Hong Kong stock market, the industry's performance in 2023 was “uneven”, which did not reflect the “boom” that high-speed rail infrastructure concept stocks should have.

Looking at concept stocks focusing on high-speed rail transportation needs, in 2023, only Guangshen Railway (00525) achieved both revenue and profit growth. Revenue increased 31.35% year over year to 26.195 billion yuan, and net profit increased 153.06% year on year to 1,058 billion yuan; while the net profit of MTR Corporation (00066) fell 20.79% year on year to 7.784 billion yuan. The net profit of Canggang Railway (02169) fell 13.36% year on year to $59 million.

Among them, both revenue and net profit growth of Guangzhou-Shenzhen Railway Co., Ltd. was mainly due to the recovery in demand for railway passenger transport, which led to a simultaneous recovery in the company's passenger transport and road network clearing service revenue.

In 2023, along with the elimination of external influencing factors in the early stages, the Shenzhen port and direct transit traffic resumed, and passenger traffic at the stations within the company's management picked up. In 2023, a total of 593.15 million passengers were sent, an increase of 123.7% over the previous year, achieving passenger revenue of 10.73 billion yuan, an increase of 60.5% over the previous year. At the same time, along with the recovery in demand for railway passenger transportation, the number of trains operated by other railway companies to stations within the company's jurisdiction and the operating services provided by the company increased simultaneously, driving the company's revenue from services such as road network clearing and railway operation to increase 16.0% year-on-year, achieving revenue of 12.09 billion yuan.

However, the sharp decline in the net profit of the MTR Corporation was due to losses in the property business. During the reporting period, despite a rebound in car service operating performance after the recovery, the company's recurring business profit soared nearly 26.3 times to HK$4.281 billion after special loss provision, and the fair value measurement of investment properties also reversed losses and recorded revenue of HK$1.42 billion, but property development profit fell by 80.1% to HK$2,083 billion, resulting in a drop in net profit. In 2023, the property management industry was driven by the sluggish real estate industry, and the overall market trend was weak, so the decline in the MTR company's property business dragged down the company's overall profit performance, which is probably to be expected.

Let's take another look at concept stocks that focus on high-speed rail infrastructure needs. Among the three concept stocks CRRC, Times Electric, and China Express, their overall performance is relatively slow. Among them, Shidai Electric (03898) is growing at a relatively slow rate, while CRRC (01766) has maintained double-digit growth in revenue and net profit. CRRC (01766)'s revenue and net profit are growing slowly, but it is superior in size, while China Express (03969) has both declined in revenue and net profit, drinking the “wine” of poor performance alone.

Among these, Times Electric's revenue and net profit both increased due to the rapid growth of emerging businesses and a sharp increase in the gross margin of the rail transit business. During the reporting period, the company achieved revenue of 21.8 billion yuan, an increase of 21%; net profit attributable to mother was 3.1 billion yuan, an increase of 22%. Among them, the revenue of the rail transit business was 12.9 billion yuan, an increase of 2%, and revenue from the emerging equipment business was 8.7 billion yuan, an increase of 70%. In terms of profitability, the gross margin of the company's rail transit business increased by 2 pct to 38% in 2023, and the gross margin of the emerging equipment business increased by 2.5 pct to 28%, driving the company's overall gross margin to increase by 1 pct to 33.9%.

Judging from the above data performance, the Zhitong Finance App believes that although the performance of individual high-speed rail infrastructure stocks is uneven, from a medium- to long-term perspective, thanks to the boom in the high-speed rail industry, the entire industry is still promising.

On the one hand, as people's demand for timeliness and convenience increases day by day, the proportion of high-speed rail travel continues to reach new highs. From 2009 to 2019, the compound annual growth rate of China's high-speed rail passenger traffic was about 42.9%. In 2023, with the elimination of the impact of the epidemic, passenger demand was released centrally. In 2023, high-speed rail passenger traffic is expected to increase by about 24% compared to 2019. Judging from the overall structure of passenger traffic, high-speed rail passenger traffic accounts for 22.8% in 2022, and is expected to exceed 30% in 2023.

On the other hand, demand for rail travel during the 2024 Spring Festival travel season can be expected to increase. After the elimination of epidemic factors in 2023, railway passenger traffic recovered rapidly along with the release of travel demand. The passenger traffic volume of the May 1/Dragon Bo/National Day railway in 2023 changed by 22%, 13%, and 20%, respectively, compared with before the epidemic. The recovery of passenger traffic during the long holidays was relatively better. During the 2024 Spring Festival travel season, railways across the country are expected to send 480 million passengers, an average of 12 million passengers per day, an increase of 37.9% over the 2023 Spring Festival travel season and an increase of 18.0% over the 2019 Spring Festival travel season.

Stimulated by multiple demands, China's railway investment has also increased rapidly in recent years. Among them, the 10-year CAGR from 2004 to 2014 was 24.5%. Railway investment rapidly increased from 90.1 billion yuan to 808.8 billion yuan, and remained at about 800 billion yuan every year thereafter. Further, under the “eight vertical and eight horizontal” railway network construction plan, the amount of railway investment will remain high in the future.

High investment has also led to a rapid increase in the proportion of high-speed rail mileage, mainly replacing ordinary rail and road travel. According to the plan, the target is to reach 30% and 35% of high-speed rail mileage by 2025 and 2035, respectively.

Take the Guangzhou-Shenzhen Railway Railway as an example. In 2023, it benefited from the conversion of direct trains to high-speed rail trains and the opening of multiple high-speed rail transit measures, a sharp increase in revenue and net profit in 2023. In the future, thanks to Guangzhou and Guangzhou East Railway Station or the transformation into high-speed rail stations, and the company is expected to fully enter the field of high-speed rail operation, there is huge room for imagination about performance. According to Guangdong Province's “14th Five-Year Plan” transportation system development plan, Guangzhou Railway Station and Guangzhou East Railway Station may be converted into high-speed rail stations, while Guangzhou Railway Station will establish a connecting line with Guangzhou South Railway Station.

Looking at the above, the high-speed rail infrastructure track is clearly a “Changpo Houxue” track, and the entire industry is showing a steady growth trend. For industry-related concept stocks, this is undoubtedly a major advantage that can be seen. At the same time, high-speed rail infrastructure is one of China's special valuation concepts, and industry valuations also have obvious potential for improvement, so concept stocks in the sector that are driven by the dual logic of valuation and profit are probably worth paying attention to.