EB SECURITIES: Maintains a "buy" rating on China Railway Signal & Communication Corporation (03969); Low-altitude economy business expected to open second growth curve.

EB SECURITIES released a research report saying that it maintains a "buy" rating on China Railway Signal & Communication Corporation (03969). The company's business structure continues to optimize, and it is expected to benefit from the update and maintenance demand of rail transit equipment in the future. The low-altitude economy business is expected to open a second growth curve. Following this, we have raised the company's net profit forecast for 2025-2026 by 7.8%/4.1% to 4.32/4.84 billion yuan respectively, and introduced a net profit forecast of 5.52 billion yuan for 2027. The corresponding EPS for 2025-2027 are 0.41/0.46/0.52 yuan. EB SECURITIES' main points are as follows: Profit growth to turn positive in 2024, significant improvement in profitability China Railway Signal & Communication Corporation announced its annual report for 2024, with total operating revenue of 32.47 billion yuan, a year-on-year decrease of 12.2%; achieving a net profit attributable to the parent company of 3.49 billion yuan, a year-on-year increase of 0.5%. The gross profit margin was 29.2%, an increase of 3.5 percentage points year-on-year; the net profit margin was 12.5%, an increase of 1.7 percentage points year-on-year. The company's income structure continues to adjust, with increased efforts to reduce costs and increase efficiency. The company plans to distribute a dividend of 0.17 yuan per share, with a dividend ratio of 51.5%. Continuous optimization of income structure, strong performance in overseas business revenue In 2024, the company's railway/city rail/engineering general contracting achieved revenues of 18.89/8.22/2.69 billion yuan, with year-on-year changes of -1.9%/-3.6%/-65.0% respectively. The company promotes the optimization and upgrade of the industry structure, continuously cleans up and exits the municipal engineering general contracting business with low gross profit margins. Split by different business sectors, the equipment manufacturing and design and integration sectors with higher gross profit margins achieved operating revenues of 6.6/12.25 billion yuan, with year-on-year growth rates of 8.0%/4.5% respectively. Overall, the company's total operating revenue decreased slightly for the year, but the income structure continued to optimize. In the future, with the implementation of large-scale equipment upgrade and renovation policies by the government, as well as the gradual increase in demand for maintenance of EMU trains, the company's operating performance pressure is expected to be gradually relieved. In 2024, the company's overseas business achieved operating revenue of 2.44 billion yuan, a year-on-year increase of 64.2%. The main reason for the significant year-on-year revenue growth was the confirmation of revenue from the Hungarian section of the Hungary-Serbia Railway project. In 2024, the company's overseas cumulative new contract amount was 5.92 billion yuan, a year-on-year increase of 58.3%. The company undertook major projects such as the total signal system supply and installation project of the North Axis Line of the So Paulo Urban Railway in Brazil, the total system integration construction project of the "Three Power" system of the railway in Guinea-Massif, and the procurement project of the signal and train operation control system of the railway in Guinea-Massif, maintaining a continuous growth trend in the overseas market. Focus on the low-altitude economy, opening up the second growth curve The Government Work Report of 2025 proposed promoting the safe and healthy development of emerging industries such as the low-altitude economy. The company continues to focus on the "dual-track" of rail transit and low-altitude economy, cultivating low-altitude airspace control industry, drone manufacturing industry, and service operation industry, accelerating the establishment of a "three industries and one state" industrial pattern in the low-altitude economy. In 2024, the company's low-altitude airspace control system achieved its maiden flight in Nanjing and received its first contract order in Nan'an; it promoted the demonstration application of low-altitude patrol inspection, low-altitude logistics, and other scenarios in Hefei, Chongqing, and Nujiang, and promoted the deepening of the "rail transit + low-altitude" integration development model in Qingdao, Shijiazhuang, etc., creating a "rail-air intermodal" cross-sea route from Xijiang to Haikou and creating a new model of "village super + low-altitude" in Rongjiang County, Guizhou. Risk warning: increased competition in the industry, decline in the city rail market, and risks in the progress of overseas projects.