Event: On October 29, 2016, the company released its three-quarter report. In the first three quarters of 2016, the company achieved operating income of 294 million yuan, a year-on-year increase of 0.57%; realized net profit of 96.91 million yuan, an increase of 81.02%; and net profit of 28.72 million yuan, a year-on-year decrease of 44.82%. Investment points: In the first three quarters of 2016, the company's net profit increased sharply; the company has sufficient orders and is optimistic about later development. In the first three quarters of 2016, the company's operating income was 294 million yuan, up 0.57% year on year; net profit was 96.91 million yuan, up 81.02% year on year. Net profit increased significantly, mainly because of the company's non-recurring profit and loss of 68.19 million. After deducting non-net profit of 28.72 million yuan, a year-on-year decrease of 44.82%, mainly due to a decline in operating profit, an increase in expenses due to mergers and acquisitions, and an increase in preparations to accrue bad debts. In the first three quarters, the comprehensive gross margin of the company's projects fell by about 2% compared to the same period last year, resulting in a decrease in operating profit of about 5 million yuan. Intermediary service fees paid by the company to carry out mergers and acquisitions are about 9 million yuan; fees for issuing international guarantees are about 5 million yuan; and pre-payment fees for M&A loans are about 3.37 million yuan. The provision for bad debts in the current period increased by about 8.75 million yuan compared to the same period last year. As of September 30, 2016, the execution contract amount was approximately 2,060 billion yuan, including about 1,045 billion yuan domestically and 1,015 billion yuan overseas. n Railway investment remains high, and investment in urban rail transit accelerates. The Development and Reform Commission and the Ministry of Transport jointly issued the “Three-Year Action Plan for the Construction of Major Transportation Infrastructure Projects”. In 2016-2018, in terms of urban rail transit, the focus was on advancing preliminary work on 103 projects to build more than 2,000 kilometers of urban rail transit, involving an investment of about 1.6 trillion yuan. The criteria for applying for urban rail transit construction in China have been reduced from a city with a population of over 3 million to over 1.5 million. Benefiting from the rail transit construction plan, the company's traditional business revenue is expected to maintain high growth in the next two years. The company's domestic urban rail projects have expanded from the initial Beijing-Tianjin-Hebei region to Shenzhen, Hefei, Chengdu, Guangzhou, Changsha, Nanchang, Wuhan, Ningbo, Shanghai and other parts of the country, and the competitiveness of the company's products is increasing. The low-cost acquisition of RPS, Tianjin Baofu, and BB Signal to enter the high-speed rail traction power supply contact network business is expected to obtain domestic orders and achieve rapid growth in the company's profits. On October 25, 2016, the company issued an announcement on the completion of asset transfers for major asset purchases. All 49% of the shares of Tianjin Baofu purchased by the company have been registered under RPS, and 100% of the shares of RPS and BB Signal have all been registered under Keyvia Germany, a wholly-owned subsidiary of the company. The company directly or indirectly holds 100% of the shares in RPS, BB Signal and Tianjin Baofu. RPS has a full range of high-speed electrified railways (350 km/h level), passenger lines (200 km/h grade), and general speed electrified railway traction power supply network technology, as well as traction power supply system design capabilities and manufacturing capabilities for some key products. Inheriting Germany's Baofu's core competitive advantage and brand influence in the contact network business and power supply system business, RPS has a full range of German railway contact network systems and AC/DC power supply-related technologies and products, and has capabilities in system design, preliminary design, in-depth design, installation, supervision and system integration. The main product structure of Kai Electric Power, except for the DC switch cabinet of Tianjin Baofu, a joint venture, which is primary equipment, is a control, protection, monitoring, and scheduling system, which is secondary equipment. As a result, RPS products, technology, and the company are extremely complementary. Tianjin Baofu was originally a joint venture between a listed company and German Baofu. It mainly develops, produces, and sells DC switch cabinets and other electrical equipment suitable for urban rail transit and railways, and has successively undertaken key projects such as Beijing Metro Line 15 and Beijing Metro Line 6. In the first half of 2016, Tianjin Baofu achieved a net profit of 4.52 million yuan. BB Signal specializes in trackside signal equipment, trackside detectors, etc. Profit forecasts and investment ratings Railway investment has remained high, rail transit investment has accelerated, and on-hand orders have remained high. After the acquisition is completed, it is expected to enter the high-speed rail traction power supply network business. The company's 2016-2018 EPS is expected to be 0.42 yuan, 0.42 yuan, and 0.57 yuan respectively, and the corresponding valuations are 46 times, 46 times, and 34 times respectively, maintaining the “buy” rating. Risk warning: Railway and rail transit orders fell short of expectations, and the expansion of contact network orders fell short of expectations.