Matters: Xinzhu Co., Ltd. released its 2016 annual report, which revealed that the company achieved operating income of 1,520 million dollars, an increase of 44.18% over the previous year; net profit of 19 million yuan was realized, an increase of 111.84% over the previous year. Key points 1. The rail transit industry in southwest China is booming. The company directly benefited from the rapid development of the company's rail transit business in 2016, with revenue reaching 663 million, an increase of 203.23% over the previous year; the revenue share was as high as 43.65%, double that of 20.76% in 2015. The company has mastered the most advanced third-generation 100% low-floor vehicle technology in the industry, and has achieved manufacturing capacity of 300 rail transit vehicles in early 2016. Its new rail system with independent intellectual property rights has also been successfully applied to projects such as the R1 line, the Yunnan Honghe tram project, and the Guangzhou Metro. We believe that the 13th Five-Year Plan promotes the vigorous development of the rail transit industry in the southwest region. The company directly benefits from its technological competitive advantages and location advantages. In the future, it is expected to benefit from the rapid demand for rail transit vehicles (subway vehicles, trams, etc.) in Chengdu, Sichuan and surrounding provinces and cities. The rail transit business's revenue will reach another level, and its revenue share will surpass other businesses, helping the company achieve transformation and upgrading. 2. Traditional business structure optimization. New energy vehicles and supercapacitors may become new business growth points. The bridge functional components business revenue was 611 million yuan, an increase of 20.63% over the previous year, accounting for 40.18% of revenue, down from the previous year, but still in a leading position. This business is the company's traditional dominant business, with gross margin as high as 32.67%. With the overall slowdown in national railway infrastructure investment, this business may be affected to a certain extent. However, as one of the enterprises with the most complete range of CRCC certified products and the most complete product chain, the company still occupies an important position in the domestic market. At the same time, the company is actively developing bridge inspection vehicles and other protection systems, focusing on post-construction maintenance business, bringing long-term stable income to the company, and steady growth with the increase in highways or rail bridges. The construction machinery business was completely divested in the second half of 2016 due to long-term losses. Furthermore, the original inventory of special vehicles was basically completed, and the company transformed and upgraded the business to gradually form a vehicle manufacturing capacity for new energy buses and logistics vehicles (the Ya'an No. 7 NEV demonstration line has been opened, and the first batch of vehicles in the Yazhou City Logistics Vehicle Project has been officially put into use). The business is currently in its early stages, with huge market space, and is expected to grow rapidly in the future. The performance of the supercapacitor business increased significantly, with a year-on-year increase of 246.87% and an increase in revenue share to 4.73%. The business products are widely used, the market base is good, the gross margin is as high as 35.9%, and the potential for development is huge. In addition, the company's supercapacitor products also provide strong support for its non-contact network of rail transit and the practical development of new energy vehicles, achieve a product competition strategy for three product combinations, and greatly enhance the company's competitive advantage. 3. Investment suggestions: In 2017-2019, the company is expected to achieve net profit of 74 million, 156 million, and 302 million dollars attributable to shareholders of listed companies. The corresponding EPS is 0.11, 0.24, 0.47, and the corresponding PE is 88X, 42X, and 22X, maintaining a strong recommendation rating. 4. Risk warning: Investment in the rail transit industry falls short of expectations, and the progress of PPP projects falls short of expectations.