incident. On February 21, Jianruiwoneng issued an announcement stating that the China Waterma New Energy Vehicle Industry Alliance and Zhongtong Bus signed a “Strategic Cooperation Agreement”. In 2017, the two sides will jointly develop and promote new energy logistics vehicles and new energy buses, with an order volume of 23,000 vehicles. This agreement heralds the “official” launch of Zhongtong Bus's first electric logistics vehicle, further opening up room for 17 years of growth; our comments on this are as follows: The first batch of electric logistics vehicles has arrived, with an agreement order of 23,000 vehicles. The agreement includes 8,000 pure electric buses and 15,000 electric logistics vehicles; among them, the Watermar Industry Alliance is responsible for promoting 15,000 logistics vehicles and 3,000 pure electric buses. Since April '17, it has purchased no less than 300 buses and no less than 1,650 pure electric logistics vehicles; while Zhongtong Bus is responsible for promoting the remaining 5,000 new energy buses. We are optimistic about the domestic electric distribution vehicle market in '17, and this agreement is also the implementation of the first large order for the entire market in the new year. It means that Zhongtong has successfully transitioned from a simple bus company to an electric logistics vehicle company, further opening up market capitalization space. This agreement will drive a 20% increase in bus sales and a significant increase in logistics vehicles. According to information from the company's official website, in 2016, TongBUS sold 14,000 new energy buses, with sales volume reaching 9.3 billion yuan, up 34% and 47%, respectively, and market share reaching 12.3%; the electric bus promotion target mainly depends on government policies, and the total market volume continues to grow steadily. Assuming that the market share remains unchanged outside of the company agreement in '17, this cooperation will bring an increase of 3,000 pure electric buses and 15,000 electric distribution vehicles to Zhongtong. Bus sales increased 21%, and logistics vehicles achieved a rapid breakthrough from zero to one. Performance is expected to increase by 30% in '17. In 2016, the 8-10 meter bus models were the main ones. According to previous subsidy standards, the company expects the company's bicycle gross profit to be around 150,000. As for 2017, we expect that the company's models will move to 10 meters, and the battery capacity will be maximized in terms of model support and receive more subsidies. According to the company's model promotion catalogue, the bicycle capacity is around 165 Kwh. According to the national subsidy of 1,800 yuan/kwh and the 50% land subsidy calculation, the total state subsidy is 300,000, land supplement is about 150,000, for a total of 450,000 per vehicle; according to 1,900 yuan/kwh of lithium iron phosphate (down 20% from the previous year), the battery cost is about 310,000. In addition, purchasing costs of about 50,000 yuan per vehicle are deducted. Theoretically, the gross profit of bicycles is about 90,000 higher than that of traditional buses at the same price. The gross profit is estimated to be between 120,000 and 130,000 per vehicle, down 20% from 2016; however, the 20% sales growth rate makes the overall gross profit of buses not much change. Also, according to Gaogong lithium battery price information, the current three-yuan pack price has dropped to 1.5-1.6 yuan/wh, a drop of about 15% in the past month. Taking 40kwh logistics vehicles as an example, the state subsidy is 57,000 and the land supplement is 28,000, for a total of about 85,000; under the assumption of 1,550 yuan/kwh for battery purchases, there is still gross profit margin of 23,000/vehicle, and 15,000 logistics vehicles can bring about 300 million gross profit; we expect the company's annual electricity distribution sales volume to be more than 20,000 units, leading to a gross profit increase of more than 400 million units, an increase of about 30% over 2016; battery costs have declined further in 2018, and the subsidy standards have not changed, so profits will be even more impressive. Profit forecasts and ratings. Looking forward to the future, while subsidies are being reduced, lithium battery prices are falling, and automakers will benefit the most. Zhongtong Bus is the purest standard for new energy vehicles in China, and its performance is extremely flexible. The company's 16-18 EPS is estimated to be 1.19 yuan, 1.53 yuan, and 1.86 yuan respectively, and the PE corresponding to the latest closing price on February 20 is 13.03 times, 10.14 times, and 8.31 times, respectively; the PE valuation for '17 is 20 times, corresponding to the target price of 30.60 yuan, maintaining the “buy” rating. Uncertainties. New energy vehicle policy adjustments, and logistics vehicle sales fell short of expectations.