Event: The company announced that net profit for the first three quarters of 2014 fell 13.7%, and the third quarter increased by 3.1% in a single quarter. Comment: The performance of the third quarter improved month-on-month, operating cash flow increased sharply, and the repayment of the pipe gallery project was slow but will definitely be recovered. Revenue for the first three quarters of 2014 fell 18.6% year on year, and net profit fell 13.7% year on year. The main reason is that revenue confirmation for the Hunnan New Town Integrated Pipeline Project in Shenyang City was delayed in the first half of 2014, so the company's overall profit declined in the first three quarters, but the repayment of the pipe gallery project began in October, and according to the agreement, the government should pay 264 million yuan this month. The company's third-quarter revenue and profit increased by 4.1% and 3.1% year-on-year respectively, with significant month-on-month improvements. In addition, the company's net operating cash flow for the first three quarters of 2014 was 97.936 million yuan, an increase of 150.9% over the previous year. It shows that the company's strategy of changing from revenue oriented to cash flow oriented has achieved results. The company has built three main businesses: smart cities, intelligent equipment, and system integration. The chairman of the company has a technical background. First at the Shenyang Machine Tool Research Institute, then he started as an agent for Siemens, then entered the fields of automation system integration in metallurgy, electricity, and municipal administration, etc., and from tire automation system integration to tire molding machine manufacturing. The company's traditional main business is tire molding machines. In 2012, two subsidiaries were established to do smart city and factory automation business, forming the three main businesses of smart cities, intelligent equipment, and system integration. The company's product development plans within the next three years include: ① high-end tire molding machines; ② energy-consuming industrial intelligent unit integration systems; ③ flexible industrial material conveying systems; ④ high-end CNC machine tools and electric spindle units; ⑤ electronic control system solutions for automated special equipment (or production lines); ⑥ smart city system solutions, etc. The company completed its business layout in 2012, and revenue growth rates in 2012 were as high as 103% and 73% respectively. In 2014, due to problems with funding for government pipe gallery projects, the company dragged down the company's performance. Starting in 2015, the company returned to a period of rapid development. It is predicted that after 15 years, the company will maintain a net profit growth rate of around 30% every year. Business 1: Intelligent equipment business: The company's intelligent equipment includes special machines (molding machines, machinery division) and power automation (power distribution, meters). (1). Tire molding equipment: The company entered the tire molding machine market in 2006. The company mainly makes commercial vehicles, and began to make semi-steel tires in '13. Competitors are soft holding and Saixiang Technology, and the company is only the core part. Currently, the domestic radial tire molding machine market has an annual demand of about 500 sets, soft control sales volume is about 100 sets, and Lan Ying equipment is about 60 sets. Sales volume is expected to be about 60 units in '13. The company's current molding machine products are all-steel one-shot molding machines, with an average price of about 5 million. Domestic semi-steel radial tire molding machines are mainly imported, and the average price of the semi-steel molding machine being developed by Lan Ying Equipment is estimated to be over 5 million, and the gross margin is about the same as that of all-steel. Judging from market demand, it mainly comes from incremental market and stock market renewal demand. Looking at the new market, after experiencing a slump period in 2011-2012, as car sales improved and ownership increased, downstream customers began to expand production capacity in 2013, and company orders also increased. Judging from the renewal market, the current tire molding machine market in China has more than 2,000 units, most of which were purchased after 2003. The ratio of all steel to half steel is about 1:1. The life span of tire molding machines is about 10 years, so demand for renewal has begun to be released. (2). Power automation: The company's automation projects also involve metallurgy, energy saving, municipal administration, subway and other fields. Electricity is used for power generation+transmission automation, and the company's power industry revenue will increase several times in 2013. In terms of water treatment, the company mainly carries out electricity and automation in municipal administration, water purification, and sewage treatment. Metallurgical industry companies mainly make energy-saving and environmentally friendly heating furnace control systems, etc. (3). Participation in the machine tool electric spindle market: The company cooperated with German DVS to establish a joint venture company, which mainly produces high-end CNC machine tools and electric spindle units, with an annual domestic demand of about 10,000 units. In the future, electric spindles will replace manual labor and belt businesses with broad prospects. Business 2: Smart cities: Pipeline projects have a first-mover advantage, and there is no risk of repayment: The company comprehensively lays out security, fire protection, energy saving and emission reduction, renewable resources, etc. in the intelligent city industry chain. The company won the bid for the Shenyang pipe gallery project by BT in 2012. The total contract amount is about 1.1 billion yuan. The pipe gallery project is suitable for the construction of new urban areas, and the cost of building old cities is high. In the long run, pipe galleries can save land, and the economic benefits are remarkable. According to the supplementary agreement disclosed by the company in September, the first phase of the pipe gallery was delivered and entered into the repurchase period at the end of October 2013, and paid 2.64/2.85/271 million yuan in 2014/10, 2015/10 and 2016/10 respectively; the second phase will enter the repurchase period in June 2015, and the remaining 260 million yuan will be paid over three years. Furthermore, the company announced in October that the issuance of 260 million corporate bonds was approved, which will provide some financial support for the company's pipe gallery project. Affected by preliminary work such as land acquisition and demolition in some areas, due to Party A's preliminary work, the construction period of the second phase of the pipe gallery was extended. The parties to the contract determined that the construction period for the second phase of the pipe gallery was from 2012/10-2015/6, the repurchase period for the second phase of the pipe gallery was 2015/6-2018/6, and the repurchase price payment period for the second phase of the pipe gallery was 2016/6, 2017/6, and 2018/6, respectively. We judge that the company may receive orders for pipe gallery projects in other cities in the future based on its project experience. Business 3: System integration (factory digitalization): Digitalization improves management efficiency, selling equipment+management: Factory automation has gone through 3 stages: stand-alone machine - connection - workshop automation. Previously, the company sold 6 million molding machines for 6 million and 10 units for 60 million yuan, but now it has customers add 10 million yuan to digitally transform their workshops. The company's philosophy is “Digitally representing each production process through digitalization helps optimize processes, improve performance, and stimulate workers' enthusiasm for work.” For customers, it can not only increase productivity, but also reduce management expenses. The company's digital factory business developed rapidly this year, and the cost for remodeling one workshop in one factory was tens of millions. The company has three advantages for a good digital factory: industry popularity, process maturity (process transformation, solidification), and IT workers. Investment advice: It is estimated that the company's EPS for 14/15/16 will be 0.33/0.45/0/59 yuan, and the corresponding PE will be 45/31/24 times, giving it an “increase in holdings” rating. Risk warning: 1. Competition in traditional business has intensified, and gross margin has declined. 2. Revenue from the pipe gallery project continues to be delayed, dragging down the company's performance.