Zhonghua Securities released a research report that in the past two decades, China has experienced several typical rail transit cycles, such as: 2008-2010, which was mainly driven by investment and more benefited from infrastructure related to infrastructure; 2013-2015: Mainly focused on equipment delivery, combined with import substitution, vehicles and parts are more elastic. Since 2023, the rail transit equipment industry may be entering a new cycle due to factors such as improving passenger flow, maintenance cycles, and equipment updates, and is expected to open up a larger market space. Leading companies with obvious competitive advantages in corresponding sub-sectors are expected to benefit first. Beneficiary targets: CRRC (601766.SH); China Railway Signal & Communication Corporation (688009.SH); Times Electric (688187.SH); China Railway Hi-Tech Industry Corporation (600528.SH).

Huachuang Securities' main views are as follows:

Improving passenger flow: The peak of railway construction may have passed, and the driving force for related procurement has shifted from rapid growth of new railway mileage to incremental demand brought by improving passenger and freight demand. As of the first half of 2024, the cumulative passenger volume of the railway reached 2.096 billion person-times, an increase of 18.39% year-on-year, and an increase of 18.16% compared with the same period in 2019; the cumulative freight volume of the railway reached 2.513 billion tons, an increase of 21.70% compared with the same period in 2019. With the increase of railway passenger flow, the demand for new EMU is expected to increase.

Maintenance cycle: With the formation and improvement of China's rail transit network, the growth rate of new EMUs may slow down, while the stock market is getting larger and the logic of incremental demand in the industry will be gradually weakened, with stock demand gradually occupying a dominant position, and stock EMUs need to be maintained regularly, roughly divided into five maintenance levels from low to high, 1-2 level is maintenance, and 3-5 level is advanced maintenance. According to the announcement of CRRC, the advanced maintenance cycle of EMUs is roughly divided into 3 years/6 years/12 years. During the period of 2013-2016, the increase of EMUs was particularly obvious, and it is expected that the post-rail transit maintenance market will significantly increase, ushering in a golden period.

Equipment update: The scrapped service life of old-fashioned diesel locomotives is 30 years, but some old-fashioned diesel locomotives in use are in a state of overdue service due to their early development. On December 5, 2023, the National Railway Administration issued a notice on "Management Measures for Phasing Out and Updating Old-fashioned Diesel Locomotives (Draft for Soliciting Opinions)", which stipulated that from 2027, old-fashioned diesel locomotives whose service life has reached the scrapped period should be completely removed from the railway transportation market ; From 2035, old-fashioned diesel locomotives should be completely removed from the railway transportation market.

In February 2024, the National Railway Administration stated that it will "strive to achieve the basic elimination of old diesel locomotives by 2027", and the timetable has been advanced. In June 2024, the Ministry of Transport and other 13 departments issued a notice on the "Action Plan for Large-scale Equipment Updating in Transportation", proposing "accelerating the phasing out of old locomotives and encouraging the updating of new energy locomotives"; as of the end of 2023, the country had 0.0224 million railway locomotives, of which 0.0078 million were diesel locomotives, and there were more old locomotives. Assuming that the locomotive is 16 million yuan/vehicle, if 800 old diesel locomotives are updated every year, the average locomotive replacement space in the future three years is 12.8 billion yuan.

Risk warning: Manufacturing industry is less than expected; passenger traffic is less than expected; industry policy changes; maintenance and equipment updating are not as expected; exports are not as expected.