Key investment points: Urban rail development space is vast, and investment in railway electrification remains high. During the “12th Five-Year Plan” period, China's urban rail transit traffic mileage showed a rapid growth trend; by the end of 2015, it had exceeded 3,600 kilometers. In the future, the threshold for declaring urban rail construction in China is expected to be lowered. At the same time, approval authority is decentralized, and urban rail transit is expected to usher in rapid development during the “13th Five-Year Plan” period. In terms of railway construction, large-scale development of electrified railways is in line with China's basic national conditions. Compared with developed countries, there is still a big gap in railway development, so we expect investment in railway electrification to remain high. The rail transit electrical equipment leader set sail in the wind. Under the impetus of urban rail and electrified railway construction, Kai Electric will follow the trend and develop rapidly. Since its establishment, the company has been committed to the application and innovation of automation technology in the rail transit field, and has become one of the technical standards setters for related domestic industries. The company has a complete product system, outstanding technical and R&D advantages, and has industry pioneering and brand advantages. The products are widely used in national key projects such as the Beijing-Shanghai High Speed Railway, the Daqin Heavy-Duty Railway, the Qinghai-Tibet Line Xige Plateau Electrified Railway, and many subway projects across the country. Epitaxial expansion has entered a new field of rail transit electrical equipment. The company announced a major asset purchase plan in February of this year, and will acquire shares in the three companies in cash. Among them, RPS inherits the core competitive advantage and brand influence of Germany's Baofu in the contact network business and power supply system business, and has a full range of German Federal Railway contact network systems and AC/DC power supply related technologies and products; Tianjin Baofu is mainly engaged in the production of DC switch cabinet equipment for urban rail transit; and BB Signal is mainly engaged in railside signal equipment, railside detectors, etc. In the future, the company will speed up the full integration of German RPS products and technology, launch the localization of the two product lines of the joint venture Tianjin Alpha UnionPay, and actively expand the new product line. Give it a “Recommended” rating. We expect the company to achieve revenue of 5.30, 6.80, and 866 million yuan from 2016 to 2018, and achieve net profit of 1.01, 1.22, and 150 million yuan. The corresponding EPS is 0.37, 0.45, and 0.55 yuan, respectively, corresponding to the current share price PE of 49, 41, and 33 times, respectively. Considering that rail transit construction will accelerate during the “13th Five-Year Plan” period, the core competitiveness of the company's main business is outstanding, and it will grow steadily, we are optimistic about the company's medium- to long-term development prospects and give it a “recommended” rating. Risk warning 1. Risk of rail transit investment falling short of expectations; 2. Risk of major asset restructuring; 3. Market competition risk