The acceleration of railway information technology investment, AI aids in intelligent progress

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

• Total railway investment welcomes a turning point of "bottom rebound", and the ten-year renewal cycle will restart. 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 declining trend year by year, but in 2023, there was a rebound with an annual total of 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, highlighting the enthusiasm of state rail investments. The first bidding announcement for 2024 shows a procurement volume of 165 sets (summary of different configurations), surpassing the total procurement volume 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 ten years, there will be a large-scale equipment upgrade, so the total investment in railway fixed assets will show a year-on-year increase at the beginning of the cycle, and the absolute amount will be quite large, then gradually decline towards the end of the cycle. The turning point in 2023 and the year-on-year growth trend of investment in the first four months of 2024, as well as the first phase of EMU procurement in 2024 exceeding last year's historical levels, all strongly confirm that the trend of a new cycle of railway investment is gradually emerging. The National Railway has shown strong enthusiasm in terms of investment. We expect that in the next three years, there will be a golden period of various product upgrades combined with the deployment of new products, and the total amount of railway fixed asset investment will gradually increase.

Mesoscopic Level - The Acceleration of Railway Informatization Investment 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 "Planning", by 2027, the digitalization level of railways will be significantly improved, with key areas achieving intelligence. By 2035, the digital transformation of railways will be fully completed, and the intelligence level of various railway business areas will be comprehensively improved; according to the "14th Five-Year" Railway Technology Innovation Plan published by the National Railway Administration, the construction of the intelligent railway technology system architecture 2.0 version will be realized. By 2025, intelligent railway technology will achieve comprehensive breakthroughs, including technological innovations in intelligent construction, intelligent 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 internal combustion locomotives, improve and update subsidy policies, and strive to basically eliminate old internal combustion locomotives by 2027. This is also a specific action taken by the railway industry to implement the central government's directive on promoting large-scale equipment updates.

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

Micro-Level - AI Facilitates Progress in Railway Intelligence. AI technology can accelerate the comprehensive intelligent upgrade of railway systems, such as using AI technology for safety monitoring (AI video analysis proactively reporting anomalies), intelligent inspection and maintenance (early fault recognition 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 many other fields. In practical applications, a certain company launched the railway visual capability platform "Anshi Platform," which separates business systems from visual services through platform-based intelligent vision, achieving dynamic management of intelligent visual capabilities through standardized algorithms and models; it also launched the country's first large model technology product in the railway industry, "Railway AI Knowledge Intelligent Assistant," which has been trialed in certain railway bureaus, local railways, and urban rail.

Suggested areas of focus: railway command and dispatch systems/special communication, high-speed maglev operation control systems/signal systems, train operation control systems/automatic ticket vending and checking systems, train operation control systems, and other related fields.

Risk Warning: AI development is not meeting expectations, computing power demand is below expectations, market competition risks.