CRRC Times Electric's earnings growth slowed in 1H, but price increases, metro tendering, and railway planning are expected to support subsequent growth

Overview

The report assesses the reasons for CRRC Times Electric's slowdown in 1H26 results and discusses growth drivers from 2H26 through 2027. Nomura believes near-term softness in the emerging equipment business warrants lower earnings forecasts, but power semiconductor price increases, a rebound in metro tendering, and railway and EMU demand during the 15th Five-Year Plan can still support steady growth. It therefore maintains its Buy rating and CNY 68 target price.

Core views

In 1H26, CRRC Times Electric's revenue increased 7.0% YoY to CNY 13.071bn. Rail transit business revenue grew 9.7% to CNY 7.580bn, while emerging equipment business revenue increased only 3.5% to CNY 5.428bn, becoming the main business-level reason for slower earnings growth. Performance within emerging equipment was mixed: electric drive revenue rose 46.5% to CNY 1.464bn and power semiconductor revenue grew 11.7% to CNY 2.699bn, but new energy revenue fell 65% to CNY 367mn. As the rail transit business's revenue contribution increased to 58%, gross margin improved 0.8 percentage points YoY to 32.8%. However, the operating expense ratio rose from 16.5% in 1H25 to 17.0%, while other income declined to CNY 98mn, partially offsetting the benefit from the effective tax rate falling from 14.5% to 14.0%. Consequently, net profit increased only 2.4% YoY to CNY 1.712bn. Nomura expects earnings to resume steady growth in 2H26, with power semiconductor price increases as the key driver. Management stated that the company issued price increase notices to major customers in July 2026, citing higher metal costs and tight industry capacity caused by demand from artificial intelligence data centers, electric vehicles, and smart grids. The report's logic is that if the price increases take effect in 2H, the power semiconductor business will not only benefit from demand support but may also improve revenue and profitability through higher pricing, thereby mitigating the impact of weak 1H growth in the emerging equipment business. Another short-term variable for the rail transit business is the timing of metro tenders. In 1H26, nationwide tenders for metro traction system vehicles totaled only 382 units, well below the 1,054 units recorded in the prior-year period. Management said most metro tenders would occur in 2H26. The report therefore views weak tendering in 1H primarily as a timing mismatch and regards the realization of 2H tenders as important support for growth in the rail transit business. Regarding medium- to long-term demand, management described the railway plan under the 15th Five-Year Plan as "moderately ahead of schedule": by 2030, China's total railway network is expected to reach 180,000 km, including 60,000 km of high-speed rail, compared with 165,000 km and 50,400 km, respectively, at the end of 2025. This implies approximately 3,000 km of additional track per year and baseline demand for around 200 EMU trainsets annually. Based on this, Nomura believes railway construction and EMU orders can provide a demand floor for rail transit equipment in 2027 and beyond. However, the new energy business remains a notable drag. China's photovoltaic installations fell 66% YoY in 1H26, consistent with the company's weak new energy revenue, which declined 65% YoY. Given that 1H26 growth in the emerging equipment business and earnings fell below its previous expectations, Nomura lowered its 2026 and 2027 EPS forecasts from CNY 3.32 and CNY 3.61 to CNY 3.10 and CNY 3.43, respectively, but still expects the company to achieve steady earnings growth in 2H26 and 2027. The target price remains CNY 68, with the valuation benchmark rolled forward from 20x 2026F P/E to 20x 2027F P/E, consistent with the company's historical average. The stock closed at CNY 49.11 on the report date, corresponding to approximately 14x 2027F P/E. The target price implies 38.5% upside, leading Nomura to reiterate its Buy rating.

Analysis framework

The report first breaks down 1H26 revenue growth between rail transit and emerging equipment, then uses the business mix, gross margin, expense ratio, other income, and tax rate to explain why net profit growth lagged revenue growth. It subsequently evaluates future growth based on power semiconductor price increases and supply-demand conditions, the timing of metro tenders, and railway mileage and EMU demand under the 15th Five-Year Plan. Finally, it lowers its EPS forecasts and determines the target price using the historical average P/E multiple.

Methodology notes

• Valuation methodologyPE/PEG valuation

  Forward P/E valuation

  Nomura values CRRC Times Electric at 20x 2027F P/E, consistent with the company's historical average, deriving a target price of CNY 68.

• Company fundamentals and financial frameworkEarnings quality analysis

  Profit growth bridge analysis

  Starting from the business mix and gross margin, the report then examines the operating expense ratio, other income, and effective tax rate to explain why revenue grew 7.0% while net profit increased only 2.4%.

• Industry/sector analysis frameworkSupply-demand framework

  Power semiconductor supply-demand and price increase analysis

  The report links rising metal costs and capacity constraints caused by demand from artificial intelligence data centers, electric vehicles, and smart grids with the company's price increase notices to customers, using these factors to assess growth and profitability improvement in the power semiconductor business in 2H26.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CRRC Times Electric (688187 CH)

  The report views power semiconductor price increases, a recovery in metro tendering, and railway and EMU demand under the 15th Five-Year Plan as the main growth supports from 2H26 through 2027.

  Strengths

  Rail transit business revenue increased 9.7%, with its higher business contribution driving gross margin improvement; electric drive revenue grew 46.5%, and power semiconductor revenue increased 11.7%.

  Weaknesses

  Emerging equipment business revenue grew only 3.5%, new energy revenue declined 65%, and the operating expense ratio rose to 17.0%, slowing net profit growth to 2.4%.

  Comparison

  The target price is based on 20x 2027F P/E, consistent with the company's historical average; the stock currently trades at approximately 14x 2027F P/E.

  Risks

  Weaker power semiconductor demand, reduced railway fixed-asset investment, and persistently weak growth in the new energy business.

Key data

• Total revenue in 1H26CNY 13,071mnUp 7.0% YoY.
• Rail transit business revenueCNY 7,580mnUp 9.7% YoY, accounting for 58% of total revenue.
• Emerging equipment business revenueCNY 5,428mnUp only 3.5% YoY.
• Electric drive business revenueCNY 1,464mnUp 46.5% YoY.
• Power semiconductor business revenueCNY 2,699mnUp 11.7% YoY.
• New energy business revenueCNY 367mnDown 65% YoY.
• Gross margin32.8%Up 0.8 percentage points YoY.
• Net profitCNY 1,712mnUp 2.4% YoY.
• Operating expense ratio17.0%16.5% in 1H25.
• Other incomeCNY 98mnDeclined and weighed on profit growth.
• Effective tax rate14.0%14.5% in 1H25.
• Nationwide metro traction system vehicle tender volume382 units1H26 data, versus 1,054 units in the prior-year period; management expects most tenders to take place in 2H.
• 2030 railway mileage plan180,000 kmIncluding 60,000 km of high-speed rail; the figures were 165,000 km and 50,400 km, respectively, at the end of 2025.
• Average annual increase in railway mileageApproximately 3,000 kmEstimated from the mileage increase implied by the 2030 plan relative to the end of 2025.
• Baseline EMU demandApproximately 200 trainsets per yearManagement's demand assessment based on the railway plan under the 15th Five-Year Plan.
• China photovoltaic installations-66% YoY1H26 data, reflecting weak demand in the new energy business.
• 2026 EPS forecastCNY 3.10Lowered from CNY 3.32.
• 2027 EPS forecastCNY 3.43Lowered from CNY 3.61.
• Target price valuation20x 2027F P/EPreviously based on 20x 2026F P/E; the current multiple is consistent with the historical average.
• Current valuation14x 2027F P/EStock valuation on the report date.
• Closing price and target price upsideCNY 49.11 / +38.5%Closing price on August 19, 2026, and implied upside to the CNY 68 target price.
• Market capitalizationUSD 10,320.4mnCompany market capitalization stated in the report.
• Free float35.6%Free-float share percentage stated in the report.
• Three-month average daily trading valueUSD 120.7mnLiquidity indicator stated in the report.
• Share price performance1 month +7.4%, 3 months -10.5%, 12 months +9.1%Absolute performance in CNY; relative to the CSI 300, performance was +3.0%, -7.8%, and -2.8%, respectively, over the same periods.

Impact & implications

The report believes weak profit growth in 1H prompted earnings forecast cuts, but the business outlook has not fundamentally reversed. If successfully implemented, power semiconductor price increases could improve growth and profitability in 2H. The shift in metro tenders from 1H to 2H and baseline annual EMU demand generated by railway construction under the 15th Five-Year Plan could support the rail transit business. Weak new energy demand will nevertheless continue to constrain the overall pace of recovery in the emerging equipment segment.

Risks

• If demand weakens, growth in the power semiconductor business may fall short of expectations and affect the achievement of the target price.
• Reduced railway fixed-asset investment could cause railway business growth to be slower than expected.
• The new energy business may remain weak; China's photovoltaic installations fell 66% YoY in 1H26.

What to watch

• Monitor whether the power semiconductor price increase notices issued in July 2026 translate into actual pricing and profitability improvements in 2H.
• Monitor whether metro traction system tenders are concentrated in 2H26 as management expects.
• Monitor order realization associated with the railway mileage plan under the 15th Five-Year Plan and baseline demand for approximately 200 EMU trainsets per year.
• Monitor whether photovoltaic installations and new energy business revenue can recover from their sharp declines in 1H.