Railway information technology investment accelerates, AI aids in intelligent progress

Macroeconomic Level - The large-scale equipment update cycle for railway transit is approaching, and overall fixed asset investment is expected to reach a turning point, with the industry's prosperity likely to accelerate year by year:

• Total railway investment welcomes a "bottoming rebound" turning point, the ten-year update cycle will reopen. From 2014 to 2023, railway investments were completed at 808.8 / 823.8 / 801.5 / 801.0 / 802.8 / 802.9 / 781.9 / 748.9 / 710.9 / 765.4 billion yuan respectively. It can be seen that since 2020, railway investment has shown a year-on-year decline, but in 2023, there was a rebound to achieve 764.5 billion yuan, a year-on-year increase of 7.5%; from January to April 2024, the national railway completed fixed asset investment of 184.9 billion yuan, a year-on-year increase of 10.5%.

• The procurement volume of the Fuxing high-speed train exceeded expectations, demonstrating the enthusiasm for investment by China Railway. The "350 km/h Fuxing smart configuration trainset procurement project" is one of the important tasks that the China Railway Group executes every year. The first bidding announcement for 2024 shows that the procurement volume will reach 165 sets (summary of different configurations), surpassing the procurement volumes of previous years in 2023 (which were 103/55/6 sets respectively).

• We believe that due to factors such as the lifespan of equipment, ten years is a major cycle for railway investment. After a decade, large-scale equipment upgrades will be reopened, thus the total investment in railway fixed assets will show a year-on-year upward trend at the beginning of the cycle, with a significantly large absolute value, and a year-on-year decline towards the end of the cycle. The turning point in 2023 and the trend of year-on-year growth in investment amount in the first four months of 2024, as well as the procurement volume of the first phase of high-speed trains in 2024 exceeding last year's historical figures, all strongly confirm that the trend of a new cycle of railway investment is gradually emerging. The national railway shows strong enthusiasm for investment, and we expect that within the next three years, there will be a golden period for the replacement of various products combined with the deployment of new products, and the total amount of fixed asset investment in railways will gradually increase.

Mesoscopic Level - Accelerated Investment in Railway Informatization Amidst the Wave of Large-Scale Equipment Updates:

• Policy Support: In September 2023, the China National Railway Group Co., Ltd. issued the "Digital Railway Planning". According to the plan, by 2027, the level of railway digitization will be significantly improved, with key areas achieving intelligence. By 2035, the digital transformation of railways will be fully completed, and the degree of intelligence in various railway business areas will be comprehensively enhanced. According to the "14th Five-Year" Railway Technology Innovation Plan released by the National Railway Administration, a 2.0 version of the intelligent railway technology system architecture will be established. By 2025, intelligent railway technology will achieve a comprehensive breakthrough, including technological innovations in intelligent construction, smart equipment, intelligent operations, and other aspects.

• Industry Response: At the State Council press conference in February 2024, the National Railway Administration stated that it will formulate emission standards and management measures for diesel locomotives, improve and update subsidy policies, and strive to basically eliminate old diesel locomotives by 2027. This is also a concrete action by the railway industry to implement the Party Central Committee's directive on promoting large-scale equipment updates.

• We believe that in the wave of railway updates and replacements, investment in information technology is an important trend, and the value of investment will be concentrated in niche areas closely related to technological innovation and application expansion, such as smart equipment and operations, technological innovation, the integration of 5G, big data, and artificial intelligence, etc.

Microscopic Level - AI Assists in the Progress of Railway Intelligence. AI technology can accelerate the comprehensive intelligent upgrade of railway systems, such as AI technology being used for safety monitoring (AI video analysis actively reporting anomalies), intelligent detection and maintenance (early fault identification and predictive maintenance), intelligent scheduling (optimizing train operation plans), passenger service optimization (analyzing passenger behavior and preferences), intelligent inspection, operational efficiency analysis, intelligent customer service, and various other fields. In practical applications, some companies have launched a railway visual capability platform, which separates business systems from visual services through a standardized platform for intelligent vision, achieving dynamic management of intelligent visual capabilities through algorithms and models; they have also launched the first large model technology product in the railway industry, "Railway AI Knowledge Intelligent Assistant," which has been trialed in some railway bureaus, local railways, and urban tracks.

Recommended to pay attention to: Company A (railway command and dispatch system/special communication), Company B (high-speed maglev operation control system/signal system), Company C (train operation control system/automatic ticketing system), Company D (train operation control system), etc.

Computing Power---

Optical Communication: Company E, Company F, Company G, Company H, Company I, Company J, Company K, Company L, Company M, Company N, Company O, Company P, Company Q. Hashrate Optimization/Scheduling/Rental: Company R, Company S, Company T, China Mobile, China Unicom, China Telecom. Mining Equipment: Company U, Company V, Company W, Company X, Company Y, Company Z, Company AA, Company AB. Liquid Cooling: AC Company, AD Company, AE Company, AF Company. Edge Computing Power Hosting Platform: AG Company, AH Company, AI Company. Satellite Communication: China Satcom, China Satellite, AJ Company, AK Company, AL Company, AM Company.

Data Elements---

Operators: China Telecom, China Mobile, China Unicom. Data Visualization: Company AN, Company AO, Company AP. BOSS System: AQ Company, AR Company, AS Company.

Risk Warning: AI development is not meeting expectations, computing power demand is below expectations, and there is a risk of market competition.