China Galaxy Securities: 210 train tenders have been launched and continue to be optimistic about railway equipment

The Zhitong Finance App learned that China Galaxy Securities released a research report saying that on August 19, China Railway Group issued a tender notice for the procurement project for the second batch of the Fuxing smart EMU with a speed of 350 kilometers per hour in 2025. The tender for this batch of EMUs exceeded expectations. Since this year, China Railway Group has tendered a total of 278 EMUs with a speed of 350 kilometers per hour (68 in April + 210 trains this time), and continued to grow on a high base of 265.5 groups (China Railway Group 246.5 + Meilong Railway Group 4 + Guangzhan Railway Group 15) last year. At the beginning of the year, the China Railway Work Conference proposed striving to complete infrastructure investment of 590 billion yuan in 25 years and put into operation 2,600 kilometers of new lines. It is estimated that railway fixed asset investment will continue to remain above 800 billion yuan in 25 years.

The main views of China Galaxy Securities are as follows:

Incident: On August 19, China Railway Group issued a tender notice for the procurement project for the second batch of 350 kilometers per hour Fuxing smart EMUs in 2025, involving 108 sets of Fuxing smart EMUs with a speed of 350 kilometers per hour (8 groups of normal), 30 sets of Fuxing smart EMUs with a speed of 350 kilometers per hour (8 alpine models), and 72 groups (36 trains) of the Fuxing smart EMUs with a speed of 350 kilometers per hour.

The second batch of EMU tenders in '25 exceeded expectations

Since this year, China Railway Group has tendered a total of 278 EMUs with a speed of 350 kilometers per hour (68 in April + 210 trains this time), and continued to grow on a high base of 265.5 groups (China Railway Group 246.5 + Meilong Railway Group 4 + Guangzhan Railway Group 15) last year. Furthermore, China Railway's two EMU advanced repair tenders this year totaled 663.5 groups (90.25 grade 3 repair group+235.25 class 4 repair group+338 class 5 repair groups), which is slightly lower than the same period last year. China Railway tenders since this year have been in line with China Galaxy Securities's previous judgment that the 25-year tenders for new EMU construction and advanced repairs are expected to continue to maintain a high level.

1) Demand for new cars will benefit from strong growth in railway passenger flow+traffic mileage will peak. At the beginning of the year, the China Railway Work Conference proposed striving to complete infrastructure investment of 590 billion yuan in 25 years and put into operation 2,600 kilometers of new lines. It is estimated that railway fixed asset investment will continue to remain above 800 billion yuan in 25 years. Judging from data from January to July of this year, railways across the country completed fixed asset investment of 433 billion yuan, an increase of 5.6% over the previous year; completed the number of passengers sent 2,691 billion, an increase of 6.7% over the previous year. According to a summary of routes, the average annual production mileage is expected to exceed 3,000 kilometers in 25-27. Of these, 2025 and 2027 are peak traffic openings, and an average of more than 300 new EMUs will need to be added every year. 2) The huge stock of railway vehicles is in need of renewal and maintenance, and advanced EMU maintenance has already entered the release cycle.

Railway freight is growing steadily, and the flexibility of locomotive renewal is expected to be unleashed

From January to July of this year, the National Railway sent 2,331 million tons of goods, an increase of 3.3% over the previous year. Driven by a new round of large-scale equipment updates, the early decommissioning of old internal combustion locomotives boosts locomotive flexibility. As of 2024, the number of railway locomotives owned in China was 22,500, of which 7,800 were internal combustion locomotives, which is about 4,000 units based on old ones (over 30 years). Based on the 1:2 replacement ratio for new cars before '27, the replacement demand for about 2,000 new energy locomotives will be released.

Since this year, China Railway Group has purchased a total of 455 locomotives, an increase of 26.39% over the previous year; including 240 electric locomotives, 45 3,000-horsepower energy-saving and environmentally-friendly internal combustion locomotives, and 170 4400-horsepower internal combustion locomotives; the procurement volume of internal combustion locomotives is the highest in recent years, partly due to fewer locomotive tenders in the previous two years, and partly to update and replace old locomotives. With the successive implementation of supporting policies for equipment renewal in various regions, it is expected that flexibility in locomotive renewal will gradually be released starting this year.

Investment advice

The railway industry continues to be booming, and railway investment is expected to remain high. Continued optimism about procurement of new EMUs and advanced repair and locomotive tenders is expected to support steady growth in railway equipment companies' performance. CRRC (601766.SH) and Times Electric (688187.SH) are recommended as railway equipment targets; it is recommended to focus on Coney Electromechanical (603111.SH), Yonggui Electric (300351.SZ), Mind Control (), and Jinchuang Group (DAB). 603508.SH 603680.SH

Risk Alerts

The risk that the growth rate of fixed asset investment falls short of expectations; the risk that economic growth falls short of expectations; the risk that downstream demand recovery falls short of expectations; the risk of increased market competition; the risk that tenders fall short of expectations, etc.